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The ROI of Kanban - PART 2

Updated: May 2, 2020

(Note: Some of the numbers in the ROI example were understated in a previous version of this article. This has been corrected. Thanks to those who brought it to our attention, including Altuğ Bilgin Altıntaş and Kyle Chandler)

If you haven’t read part 1 of this article series, please read it first here and see you back here in a few minutes.

Reexamining the benefits of Part 1

In part 1 as a result of basic Kanban, we examined the business outcomes that resulted in a decrease in overall coordination costs. You could argue that most organizations already have an intuitive sense that their coordination costs are a significant portion of their total cost to deliver some type of service or product. What they don’t realize is exactly how large a percentage of the work, the costs are. The other unintuitive reality of coordination costs is that it grows (as a percentage of total work) at a faster rate than the amount of concurrent work to be managed. Put another way: coordination costs do not grow linearly with the work.

In the below economic model coordination, it illustrates how costs drop at a faster rate than the amount of concurrent work being managed.

Assuming a $20M annual department cost, a basic benefit outline can be developed as seen below.

Though it’s already yielding significant benefits, it’s incomplete as more Kanban benefits will materialize within this same time period as we mature our practices further. Let’s get into those in the rest of this article.

Beyond the immediate team

Performing Kanban within the team for a time, can sometimes trigger thoughts from the team along the lines of “Gee, I wish the people who supported us did Kanban?”

This is an expression of early realization that in most organizations in order for work to be done, we need support from others. Work essentially needs to flow across and between teams. How the teams interact with each other matters if the goal is to maintain the work flowing across the organization.

Typically we see this in two scenarios.

In process support:

Handoffs from one stage to another:

Solving for the handoff problem, we realize that one team’s “done” is another team’s “to do” and that we can visualize this reality through a board design pattern called Aggregated Team Kanban. This approach shows two or more team boards visualized on one board so that the waiting between the teams can be understood better.

This introduction of Kanban across teams comes with a number of benefits:

Visibility between teams – the teams have the ability to observe how their work impacts the other team and more importantly provide the opportunity to make adjustments to their process.

Collaboration between teams – as we saw in Part 1 with collaboration across team members, this aggregated view allows for the possibility of collaborating across teams. This has the impact of two or more teams operating more as if they were one team.

Overburdening between teams – this collaboration further helps individuals work even more sustainably as the work rates between the teams can be harmonized. E.g. team 1 is not overloading team 2 with new work; they are more likely to have a shared responsibility. In Kanban, we call this unevenness of the flow, and once it can be visualized you have the opportunity to manage it.

Business benefits of Across Team Visibility and Collaboration

If you were to profile many organizations and follow the work you will discover that a major cause of work delay occurs during the handoff point between teams. This handover point typically isn’t directly managed, but with the introduction of Aggregated Team Kanban, it now can be. A big source of delays and impedance of getting to done becomes significantly reduced.

Business results can, therefore, be expressed in three additional categories:

Throughput Increase – Throughput is the count of the volume of work that gets done, not the volume of work that is being worked on. With fewer items getting stuck, the volume of work reaching a “done” state begins to increase. Modest observation of 6 to 12 months of Kanban at this level yields a doubling of throughput rates!

Reduced Time to Market – With the reduction of delays, the length of time work takes to get to done improves Lead Time. At this level of Kanban practices, this lead time reduction has been observed to be reduced between 10% to 50%. For example, if something had taken 30 days to deliver in the past, it now would take between 15 to 27 days to be completed.

Increased Customer Satisfaction – Providing a faster service will not be something this article will quantify but the business benefit needs to be recognized. Customers always have some form of time threshold for how long they are willing to wait, get that right and it affects their selection choices in a positive way.

Benefits within the first 0-18 months

Now that we’ve identified the benefits of reduced coordination costs from Part 1, we can layer in this next group of benefits to build out our business case further. With a $20M department in mind with a 10% profit margin, here is where we are so far:

With over $4.5M in benefits already identified, top-line growth becomes the dominant source of benefits thanks to our most recent process improvements introduced by improving the lead time and throughput rates.

Another that hasn’t been quantified is the increased customer satisfaction, which can align with strategies to improve the organization’s resilience and robustness with regards to market sentiment.

In the next articles in this series, we’ll show how this accelerating pattern of benefits continues to hold with even larger benefits as the practices mature further. Let's look at the benefits of evolving practices to service-oriented Kanban in Part 3!

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Martin - what an awesome post! Thank you for all these details. Not only they help us clarify and refocus the discussions on the critical topics, on the "why are we doing this anyway?!?" kind of questions. But it also gives context to the agreements required for the typical organization (from 3 to 300 or even 3000 people!) to move forward with the continuous improvements, to the setup of the hypotheses, experiments and metrics & indicators to be used down to the tactical perspective of the day-to-day work. Thank you!

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