Managing the Economics

Successful Product Owners have a profound understanding of various levels of economics including release-level economics, sprint-level economics, and product backlog economics. Product Owners consistently use economic trade-offs in their decision making.

Release-level economics can be explained using the following example. Assume that there is a newly identified feature that can increase revenue by 40% if the Scrum Team spends six weeks of extra effort leading to a 5% slip in the product schedule. Should the team trade a 5% slip in the product schedule for 40% extra revenue? The Product Owner makes such economic trade-offs to make sure that the right features are being built by the Scrum Team to maximize long-term objectives of the company.

The Product Owner is responsible for funding (or not funding) the next sprint of the Scrum Team. If the team is making good progress, Product Owner may choose to fund the next sprint. Otherwise, the Product Owner may choose not to fund the next sprint. Furthermore, once the Product Owner is satisfied with the state of the product, he/she may choose to stop funding any further development efforts and re-purpose the team to focus on other projects.

Sprint-level economics is about maximizing Return On Investment (ROI) for each sprint. Product Owners, Scrum Masters and every member of the Scrum Team should treat the company’s money as they would their own money and be frugal about making economic decisions. This is especially important when determining whether or not to fund the next sprint. Will the value that the Scrum Team creates in the next sprint be worthy of spending the money to fund the sprint? The Product Owner is responsible for answering this question and deciding whether or not he/she will fund the next sprint.

Product-backlog economics is all about prioritizing the product backlog correctly so that the highest value items are executed first. As the economic value of each feature changes over time, the prioritization of those feature change too. And the Product Owner is responsible for making those re-prioritization decisions.