If you’re still focusing on capacity planning, maybe you’re doing VSM wrong

In recent years, Value Stream Management has gained significant popularity among large organizations who are looking for a better way to align business and delivery, and for ways to optimize the end-to-end flow of value. As these organizations embark on their Value Stream Management transformation, they inevitably face a range of challenges, from organizational to cultural. But perhaps a more surprising roadblock is how Value Stream Management fundamentally changes how these organizations traditionally think about capacity planning.

Capacity planning has always been at the core of the project prioritization and negotiation process between business and delivery. As organizations move into integrated value streams and agile delivery, estimation and capacity should take a step back to drive a focus on value delivery. However many organizations are stuck with rethinking their prioritization and capacity planning processes; Value Stream Management should be far less about capacity planning and far more about investment management and dependency management.

Capacity planning is at the core of IT

Project funding and prioritization processes in large enterprises’ IT organizations have traditionally been an essential part of the negotiation process with the business. This is in fact central to the contract-based relationship between business and IT.

These processes involve a structured approach to evaluating, selecting, and allocating resources to various projects run by IT. A typical funnel would include project proposal and submission, followed by evaluation, resource assessment, and resource allocation.

In this model, the IT organization benefits from an understanding of the budgets from various lines of business, which sets the overall capacity for funding projects for a given planning period. Part of the evaluation process consists of understanding needed skills and capacity requirements. Ultimately, the project funnel provides visibility into the timing element so that IT can staff projects with the right people, at the right time.

The result of this project-centric model is that IT is taking a more sophisticated approach to managing capacity and skills. This approach is fundamentally based on the premise that one can bring capacity (people) to deliver on projects (work). In fact, one of the artifacts of this model is the heavy reliance on subcontractors to modulate capacity based on demand.

But in many ways, this has proven to be challenging in a digital world: The current project-centric funnel is unable to deliver on the business speed and agility that organizations need to stay competitive. From the onboarding of resources to the time it takes for IT to refine business requirements, to unforeseen changes or dependencies, the reality is that the pace of innovation in large organizations is lagging.

Introducing Value Stream Management

Value Stream Management is all about changing the operating model to accelerate the delivery of value. One of the first steps in any Value Stream Management transformation is defining value streams. This often entails the use of value stream mapping approaches to identify all the steps, processes, and stakeholders involved in taking a product or service from concept to delivery.

The primary goal of value stream mapping is to identify waste, inefficiencies, bottlenecks, and opportunities for improvement within that process. But another key aspect of value stream management is driving alignment and accountability across the different stakeholders. Hence, forming teams assigned to value streams is a very common and best practice.

In some cases, this does not necessarily result in organizational changes. Instead, IT continues to manage a pool of resources assigned to each value stream, and a single line of business will frequently have multiple value streams.

So, what happens when organizations shift from a predominantly variable capacity model to one that is largely fixed capacity? Logic would say that capacity planning should become a thing of the past and that the focus should be on managing priorities at a value stream level based on the established fixed capacity of the value stream.

But it is far more complicated than that…

Value stream dependencies exacerbate capacity management challenges

Unfortunately, as organizations define value streams, assign teams of stakeholders, and start managing their backlog to prioritize and optimize the delivery of value, they soon face the harsh reality that they cannot actually operate independently.

Because value streams often reflect the as-is business architecture, they tend to be divorced from the technical architecture they rely on. This results in value streams that have interdependencies on other value streams. Even when IT defines “platforms as a product” as their own value streams, these have numerous upstream consumers with competing priorities.

Similarly, cross-cutting initiatives such as compliance, or IT-driven requirements, force value streams to consider not just their own backlog, but also other downstream backlogs or even projects owned by different stakeholders.

These interdependencies can turn what was previously a complex but practicable capacity management challenge into a staggering global prioritization exercise that spans value streams and intertwines dependency management with capacity management.

But who is the owner of this prioritization? Unfortunately, there is no clear answer. For the most part, this is where organizations put governance processes in place to orchestrate this prioritization. Too often, this process requires value stream teams to create detailed estimates for capacity and skills as part of a global prioritization exercise, which happens at a fixed frequency ─ and defeats the original intent of value stream autonomy.

Moving to a better state

The reality is that it is simply not possible for large organizations to define value streams that are totally autonomous. Therefore, dependency management must become a core skill that value streams develop. But more importantly, they need to shift from a capacity to an investment management mindset.

In the same way that value streams need to justify their investment across sustaining activities or strategic initiatives, they need to anticipate the demands that may be imposed on them by other value streams. These estimates must be factored into their budget cycle and the requests managed as part of their “single backlog.”

For some value streams, such as platform services, for example, up to 80% of their capacity might be assigned to the requirements of upstream value streams. For others, this number may be 20% or less. Value streams need to realistically assess how much of their capacity will be dedicated to supporting the organization, and make this a natural part of their active portfolio and investment management.

Tactically, upstream, and downstream value streams can negotiate on a peer-to-peer basis: upstream value streams also have the flexibility to assign some of their own capacity to supplement a downstream value stream.

But strategically, this gives value streams a clear understanding of their dependencies. This in turn enables them to proactively invest to minimize dependencies over time, and as they become more autonomous, the entire organization gains velocity.

So, if your organization still goes through global prioritization exercises and governance processes, or if capacity planning is still front and center, it is time to shift the focus to dependency management and investment management. To learn more visit ValueOps By Broadcom.