RE: Dollar Days (was SIP vs ROI)

Oooops the note below was intended for the [email protected].

Clarke
----- Forwarded by Clarke Ching/STANDARD LIFE ASSURANCE COMPANY on
23/05/2003 13:21 -----
                                                                                                                                        
                              Clarke Ching                                                                                              
                                                   To:  [email protected]                                               
                              23/05/2003           cc:                                                                                  
                              13:19                bcc:                                                                                 
                                                   Subject:   RE: [SIP] Dollar Days (was SIP vs ROI)                                    
                                                                                                                                        



Hi all,

I've just forward the following to the SIP list.

I hope I haven't embarrassed myself in front of this audience :)  since
it's a simplified version for a NON-TOC audience and I've thrown it
together without any references on hand.

Clarke
----- Forwarded by Clarke Ching/STANDARD LIFE ASSURANCE COMPANY on
23/05/2003 13:16 -----
                                                                                                                                        
                              Clarke Ching                                                                                              
                                                   To:  [email protected]                                               
                              23/05/2003           cc:  "Kent Beck" <[email protected]>                                     
                              13:13                bcc:                                                                                 
                                                                                                                                        
                                                                                                                                        
                                                 Subject:                                         RE: [SIP] Dollar Days (was SIP vs     
                                                     ROI)                                                                               
                                                                                                                                        



Hi Kent,

You wrote:
>At the end of  Critical Chain, Goldratt suggests measuring investment in
>"dollar days",  the number of dollars times the number of days those
dollars
>are unavailable for  other uses. He doesn't explain in any more detail,
though.
>Does anyone know what  he's talking about?

Goldratt compares Dollar Days (DD) to how we pay interest on a loan.  You
pay interest of an amount (DOLLARS) each DAY.  These sum up to give you
DOLLAR DAYS.

With SIP you could take each requirement (story?), determine its business
value and how many days old it is.  Then you multiply the business value by
the number of days to give you the DOLLAR DAYS for that requirement.  If
you sum the DOLLAR DAYS for each requirement you have an high DOLLAR DAYS
figure for the project.  If I currently have 2 in process requirements, one
is 5 days old and worth $100 (DD = $500), the other is 20 days old and is
worth $1000 (DD = $20,000) then you current DD is $20,500.

This may be good or bad but it is meaningless until you compare it to
something (e.g. over time, against a target, against other projects).

Why use DD?  It is a way of giving weith to each requirements business
value AND how long it has been queing.  If you only do dollars then a day
old requirement valued at $100,000 is judged the same as a 3 year old
$requirement woth 100,000 .  So, this means that a $10,000 requirement that
has been waiting one day (DD = 10,000DD) is then of equivalent value to a
$100 requirement that has been waiting 100 days.

Goldratt uses DD as a local performance measure.  Each department, in a
factory, will be rewarded by keeping their own DD values low.  If your
department has inventory that is delaying a downstream department then you
count that pieces DD in your figures.  If you pay or bonus is based on low
DD figures then you are motivated to move the most important inventory
first.

The best description I've seen is in Goldratt's "Necessary but Not
sufficient" (as if you don't have enough to read, already).  You would also
probably want to look at "The Race" which is very relevent to your own SIP
investigations.

Clarke

On 22/05/2003 20:29:26 "Kent Beck" wrote:

>The overall  direction you suggest, measure in dollars instead of time,
makes
>sense for lots  of reasons. It seems similar to the Value At Risk
measurements
>that trading  firms use to measure their exposure. A dollar we spend today
is
>at risk until  the decision paid for by that dollar is tested in the
crucible
>of real  use.
> 
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