7.12 Real Options
Agile Extension to the BABOK® Guide
Real Options is used to help determine when to make decisions.
Real Options address aversion to uncertainty by providing the conditions when a commitment should be made rather than simply suggesting to wait or make the decision too early. Real Options helps stakeholders to delay decisions to the last responsible moment and focus on the highest priority item.
Real Options reduces the number of decisions to consider at any one time and delays decisions about the detail of requirements as long as possible. This is achieved by treating the detail of requirements as options and the commitment point as the time to elaborate on details. Real Options delays making decisions or commitments until the last responsible moment when the decision needs to be made.
Real Options has three simple rules:
- options have value,
- options expire, and
- never commit early unless you know why.
Options have value means keeping options available and provides value through flexibility to respond to feedback, learning, and changing needs.
Options expire means that decisions do need to be made at a certain point. Options with no expiration provide no value as that implies a decision never needs to be made.
Never commit early means keeping options available to the last responsible moment to encourage feedback, learning, and the opportunity to change.
Real Options is frequently used as a refinement and prioritization technique. It indicates when a decision should be made and when more details are needed. For iteration initiatives, this occurs during the next planning session. For flow initiatives, it occurs the next time capacity becomes available to work on something new.
A key element of this technique is the options themselves. Examples of options include:
- A user story: an option to implement a piece of functionality. The option expires when the business need changes.
- Acceptance criteria: an option to include a certain level of detail for a user story.
- A hotel reservation: an option to stay at the hotel. The option normally expires at 6 p.m. on the day of the stay at which point you are committed to paying for the hotel room.
- A business card: the option to contact the person who gives you the card. The option expires when the person changes contact details.
Examples of items that are not options include items or activities that
- you cannot do,
- you cannot afford,
- you cannot do in time,
- you cannot buy or sell, and
- you do not have the tools for.
Options are available until a point in time. They can be committed to or not. Once committed, the other options expire. Often, there is a penalty associated with failing to meet a commitment.
Some examples of commitments include:
- Using the organization's standard software development language to build a product. Failure to meet this commitment introduces risk and maintenance costs to the organization.
- Acceptance criteria completed prior to the Planning Workshops.
Turning up to work on time. Failure to meet this commitment may result in termination of your contract of employment.
Delivering items from the backlog that you have committed to deliver. Failure to meet this commitment will reduce trust and damage the team's reputation with customers.
.3 Options Expiry
In Real Options, the expiry date is conditional. This expiry date forces consideration of when options expire and no choice can be made.
Determination of when an option expires is the most important aspect of Real Options. This knowledge is critical to prevent making decisions too soon or too late.
Business analysis practitioners strive to provide quality information that supports making the right decisions. In a rapidly changing context, decision makers face much uncertainty. Frequently this uncertainty causes decisions to be made too early. If a decision is made too early, there is an increased chance that the decision will be the wrong decision.
Business analysis practitioners use Real Options to determine when information is needed to make a decision (right before the first option expires) and then gather information up until that point to improve the chance of being right.
- Simplifies decision making by providing a simple set of information to follow.
- Enables faster decision making because the focus is on the immediate decisions and defers prioritization until later when complexity is resolved.
- Informs when, not how, to construct decisions, which makes them broadly applicable as an approach.
- Optimizes processes by forcing the consideration of the decision points and the information arrival process (when data arrives and whether it arrives before the decision).
- Can be counterintuitive as they require analysis of systems from the outputs to the inputs.
- Are not a simple process to be followed by rote. It is a complex technique which requires practice and study.