Murray Cantor
Risks of what?
Yesterday, I was at the Conference on System Engineering Research (CSER) held this year at Stevens Institute. I sat through a talk which stimulated my curmudgeon tendencies. In the spirit of hopefully generating some contraversy, I will not hold back.
The talk was about an expertsystem based engineering risk management system. Essentially, the authors got a set of experts together to identify catagories of risks (people, delivery, product ...), risks in the categories, and a method for identifying level of risk and their consequence and then summing the products of the levels and the consequences. The end is the total amount of category risk. Looking at the output is supposed to give you insight of the overall program risk and the contributing risks. My problem is that I cannot parse the last sentence. In fact I do not understand terms like "program risk" and say "people risk". There may be a clash of cultures here; to many those terms seem reasonable. My argument starts here: One can ask 'What is my risk of going over budget?' or 'what is my risk of missing the delivery date?' The answers to these sort of questions are answered using stardard business analytics. See, for example, Mun's text on risk analytsis that defines risk as statistical uncertainty of a quantity that matters. For example, 'time to complete' is a quantity that does matter to a project. The uncertainty in making the date can be measuresd as the variance (or standard deviation) of the estimate of the timetocomplete. (Note, for the math aware, timetocomplete is what the statisticians call a continuous random variable.) So the answer to the question, 'what is my schedule risk?' has an unambiguous, quantified answer. What is 'my people risk' has no such answer. In fact, 'people risk' is not a concept defined in business analytics. Of course, it does make sense to ask what contributes to the schedule risk. One might fear that the inability to staff the project contributes to the schedule risk. Fair enough. In my mind, that does not make staffing a 'risk', but say a schedule risk factor. I am not sure why I am so adamant about this, but I am. It could be that I believe that the less precise use and measurement of risk is holding our industry back. Anyone want to comment or defend the socalled risk management practice underlying the talk I found so annoying ? 
Measurement Principles
In a conversation with a development lab productivity team, I was reminded that the first challenges software and system organizations face when starting an improvement program is 'what to measure'. In particular, some organizations start with what is easy to measure with the understandable thought "we need to start somewhere". I have found this approach tends not get traction. Over the years I have settled on some principles that seem to apply:
I suspect there some other principles that should be added. But these are a good start. In a later blog, I will discuss levels of measurement. Comments? 
Arithmetic with Random VariablesThis entry is a followon to my most recent entry. The idea is that random variables are are the way describe the uncertain quantities that arise in managing development efforts. They are a natural extension of the fixed variables we all grew up with. In fact, a fixed variable in a random variable that has probability one of taking a given value and probability zero of taking any other value. In this entry, I explain how you can (with computer assistance) calculate with random variables. Suppose you want to add two random variables, v1 and v2. This need might arise if you have two serialized tasks in a Gantt chart, each described by a distribution as explain in the previous entry and you would like to know how long it would take to complete both of them, i.e. the sum of their durations. How would you proceed? First note the sum would be another random variable. Therefore what you need is the probability distribution of the sum. There is no formula for that distribution, but there is an effective, commonly used numerical approach, known as Monte Carlo simulation. The idea behind Monte Carlo simulation is to use a pseudo random number generator take a sample value of v1 and a sample value of v2 and then add them. For more detail, follow this link. Note that the values are selected according to the probability distributions of each of the variables. The more likely values are taken more often. Now save that sum and do the same thing many times, say 100,000 times, and store each of the sums. For each of the sums, you can compute its probability by looking at its frequency in the collection of saved sums (some sums are more frequent than others) and divide by the number of samples (actually you have to round the sums to get the counts). What you get is an approximation of the distribution of the sums. Lets look at an example, if v1 has a triangular distribution with L = 3, E = 4, H=7, as shown in Figure 2 and v2 has a triangular distribution with L = 1, E = 6, H= 7 as seen figure 3. The distribution of the sum, found using the Monte Carlo simulator in Focal Point, is given by figure 3. First note the sum is not another triangular distribution. It is
smoother. This is to be expected from the mathematics of probability. On
the other hand, the distribution of the sum makes sense. For example,
we would expect the most likely value of the sum to be 10, the sum of
the two most likely values, but the simulation found 9.98. The
discrepancy is due to chance and would diminish with more samples. Also
note the probability is zero below 4, the sum of the lows, and above 14,
the sums of the highs. For fun, here is the distribution of the product for the variables: The reader can check if this looks sensible. Note also that the product does not have a triangular distribution. The peak is much smoother. So random variables can be used in place of fixed variables in any computation. So they have all of the utility of fixed variables and enable us to express uncertainty. They may seem foreign at first, but they are worth the trouble to learn. Like anything else, they become intuitive after a while. 
Economics of QualityI have the honor of giving one of the keynotes at the Conseg2011 conference this February in Bangalore. I have chosen a large, perhaps overly ambitious topic: "The Economics of Quality". Here is my conference proceedings document. My goals in preparing the paper and presentation is to make the case is that quality is fundamentally an economics concern and to suggest an overall approach for reasoning about when the software has sufficient quality for shipping. For those who have read some of my earlier entries, you will see have different my thinking on the topic differs from those who take a technical debt approach. Anyhow, the brief proceedings paper is very high level and there is considerable work to filling in the details and validating the approach. This paper really is the beginning of a program that I believe, when carried out, will have great benefit to our industry. So, I would like to hear from anyone who has similar interests and perspectives. There must be some existing relevant research. Perhaps we find enough likeminded folks to build a community exploring the topic. 
The Flaw of Averages in Software and Systems
mcantor@us.ibm.com
Tags:
software_estimates
flaw_of_averages
system_estimates
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Folks who have heard me present will recognize the following discussion as a variation of what I have used as an example to explain the importance of variance in software and system estimates. Imagine this time you are a development organization manager given the following artificial opportunity. You can agree to the following deal: Have the teams at your own expense develop some application, each meeting a given set of requirements. The client really wants the applications and will accept them if acceptable and perfectly will to be consulted throughout the projects. Here is the catch: if you deliver the projects on time in 12 months, you will receive $1M per application. If you are a day late, you get nothing. You have to decide whether to take the deal. Lets suppose you take the projects to your estimators and they tell you the estimated time to complete is 11 months and the estimated cost to complete is $750K for each of the projects. So you stand to make an estimated $250K per project. So you staff up as much as you take on three projects looking forward to your bonus. Was this a good deal? Those who have read The Flaw of Averages by Sam Savage and Dan Denziger already know the answer. Those who haven’t read the book should. This book nicely captures the sort of statistical reasoning that underlies IBM Rational’s approach to business analytics and optimizations (found in the RTC agile planner and the ROI calculations in Focal Point). Some key rules:
Back to the example: The time to complete is an uncertain quantity and so must be described by a distribution. Often, the estimate returned by the estimator is the mean of that distribution. The distribution may be pretty wide and so may look like Figure 1 of the attached document. (I have had bad luck trying to embed figures in the blog and I have put the figures in this this attachment.) Note that 40% of the distribution lies beyond 12 months. Assuming the $750K cost to complete estimate is dead on, lets apply some simple high school probability to get the distribution of profit (See Figure 2): · The chance of succeeding at all three projects and getting $3M is revenue.is (0.6)^{3}=0.216, · The chance of succeeding at exactly two projects and getting $2M in revenue is 3(0.6)^{2}(0.4)=0.432 · The chance of succeeding at exactly one project and getting $1M in revenue is 3(0.6)(0.4)^{2}=0.288 · ^{ }The chance you will fail at all three projects yielding no revenue is (0.4)^{3}=0.064. The weighted average of the distribution of revenues is (0.216)($3M) + (0.432)($2M) + (0.288)($1M) + (0.064)($0) = $1.8M So the likely outcome of your (3)$750K = $2.25M expense is a loss of $450K. But wait, it is worse. The distribution is probably not normal. Programs are more likely to late than early and so are skewed to the right. In this case the average (i.e. the mean) is less than the 50% point. So, as shown in Figure 3, it is possible to have the estimate of 11 months and the likelihood of failure is 50%. The revenue distribution is given in Figure 4. In this case, the weighted average of the distribution of revenues is (0.125)($3M) + (0.375)($2M) + (0.375)($1M) + (0.125)($0) = $1.5M In this the expected loss is $750K. But wait, it is still worse. The cost to complete is also uncertain. To keep things as simple as possible, lets suppose the cost to complete for each of the projects is described by three values: best case is $700K, the likely case is $750K, and the worse case is $1M To compute the expect profit in this case requires using this values as parameters for a triangular distribution (see Figure 5) and then apply Monte Carlo methods to do the calculation to get the distribution that describes the profit. The result is shown in Figure 6. Briefly in this case: · The most likely outcome is a loss of $945K · There is a 90% certainty of losing at least $805K · There is a 10% chance of losing more than $1.1M So taking this deal is at best career limiting! Notice by ignoring the rules, one is tempted to make a bad deal. Applying each of the rules with more discipline shows how bad the deal is. The moral of all this is that making business decisions based on calculations of averages can lead to disastrous outcomes. This moral needs to be taken to heart by our industry. Far too often, managers when faced with making funding projects or business commitments insist, “Just give me the number.” What they need is a distribution; the number they are given is likely to be an average. Decisions based on the number will likely go sour. No wonder the software and system business outcomes rarely delight their stakeholders. The good news is that there are robust, proven techniques to avoid the flaw of averages. 
What were they Thinking?
First, some personal disclosure: In the late 1980’s, I
worked for a while at Shell Research, developing seismic modeling and data
imaging algorithms. (See
this link.) While there I received training on oil exploration. I
remain awed by the passion, expertise, daring, and discipline of the engineers,
scientists, technicians, and skilled laborers who take responsibility for
providing the hydrocarbons we completely rely on.
Oil exploration is remarkably costly and risky. Even then in the late 1980’s, it was not uncommon to spend $1B on an exploration well, hoping to find oil based on the seismic data only to find it dry. At Shell, I was on a team that developed, for the time, a highly computeintensive algorithm for imaging seismic data captured in complex subsurfaces. They literally bought us a Cray since running the algorithm might make a marginal difference in the success rate of exploration drilling. Hence, I am not an oil industry basher, far from it. So I have been watching the BP, Deepwater Horizon gulf catastrophe with great interest. In this entry, I will share what I have gleaned from various news sources. (I have found the Wall Street Coverage very credible). So here is my net: Recall, the blowout occurred shortly after capping an exploration well (a will drilled solely to confirm the presence of a oil resevior). The depth of the well, reported 18,000 ft, is no big deal. The depth of the water, 5000 ft, is far from the record of around 8000 ft. So the well itself was routine for the industry. So what happened? BP had drilled many of these wells. In fact, ironically the blowout occurred while BP executives were celebrating their safety record. However, over the last few years have become profitable by building a very costconscious culture. Such a culture is likely to cut corners, repeatedly taking small risks in business operations. Such behavior may be rational if you believe the total liability is bounded. There is reason to believe BP’s liability is ‘capped’ at $75M. This culture seemed to be at work on the oil platform:
I bet that BP managers routinely made the same decisions for years with no adverse outcomes. They were probably rewarded for this behavior. Such a culture makes such disasters inevitable over time. A great case study of such cultures is found in Diane Vaugh’s The Challenger Launch Decision: Risky Technology, Culture, and Deviance at NASA. She studies the NASA culture that led to the decision to launch the shuttle that exploded on launch killing ‘the first teacher in space’ while tens of thousands of school children watched on television. The managers overruled the engineers who advised them that the temperature was out of spec for a launch. As she explains, the managers had gotten away with taking similar risks in the past and had decided to bow to political pressures and approve the launch. So what they were thinking is something like, “These risks are no big deal and the savings matter.” A key moral is that over time the unlikely becomes inevitable. Further, experience and past data lead to exactly the wrong behavior: they reward the risk taking, not the caution. Many have made exactly the same point about behavior of the financial firms during the financial meltdown. Internalizing this moral and acting accordingly is key to our industry. Increasing, we will be building life critical, economic critical systems that are very complex, will operate over long periods, and whose failure could be catastrophic. There is no turning away from this inevitability. So, we all need to understand that cost savings must be balanced by a clear understanding of the overall risks of failure, their consequences and the real return of investment in failure avoidance. This of course takes some math. In particular, thinking about averages is not useful. That is topic of my next entry. 
Quantum Project Management
Today, April 1, seems like a good day to bring forward an important new idea. In fact, I think this may be the next big thing.
One of the wellunderstood problems with software development project management is that it is often impossible to completely specify the complete work breakdown with certainty. The longer the project and the more innovative the project, the more uncertain the work breakdown items. This is addressed in iterative, agile planning by identifying the summary work items and then adding detail as the project evolves. Another source of uncertainty is the dependency between the summary items. This uncertainty in turn makes critical path analysis for such programs problematic. In fact there is a whole ensemble of project critical paths, each with some likelihood. For the physics literate, this ensemble of paths is much like Feynman Path Integrals in quantum theory. The math is pretty hairy (see this elementary description). Fortunately, as Feyman also pointed out, one can simulate quantum mechanics with quantum computers. I am no expert in quantum computing, but even so I have a proposal: Quantum Informed Projects (QuIPs). The idea is to represent work items as QItems using QBits from quantum computing.. Then we can represent the project as a set of entangled QItems and using a suitablly large quantum computer to calculate the wave function for the critical path. My understanding is that we do not yet have large enough enough quantum computers to make this practical. However, the same is true for implementing other useful quantum algorithms (see this example). So we can start by building algorthms. There is no time like the present (not accounting for the quantum uncertainty of measuing time) So on this special day, lets turn our attention to QuiPs. 
Toyota's Dilemma
I have mentioned in the first posting, I am still getting the hang of blogging. I guess one use of blogs is to share what on my mind while staying in the neighborhood of the topic of analytics. So, I have been putting a lot of thought to Toyota's diemma about how to deal with the reports of dangerous acceleration in their cars. The recent reports of Prius incidents (see this article in the New York Times) confirmed some of my earlier suspicions and hence this blog.
First, I need to come clean; all I know is from news accounts. I have had no contact with Toyota or any IBMers working with Toyota. Further, I need to say the the opinions here, in my opinion not controversial, are my own and do not reflect any IBM position. So what do we know:
Now, say there is one chance in a million miles of driving of the latent defects manifesting. They may be impossible to find with standard testing and will inevitably happen every so often to drivers. This is the standard insight that with large volumes unlikely events become inevitable. So with Toyota's large sales, they may be the victim of their success. The avionics community has developed a discipline around safetycritical software. There are design and model testing methods to validate that the embedded software is good enough to stake people's lives on the code running correctly. (There is a good article is the latest Communications of the ACM on model checking for avionis) It seems Toyota and the entire auto industry needs to adopt these safetycritical disciplines going forward. The cost of these practices is overshadowed by the costs of costs of the highly publicized incidents, the suits, and other liability. 
Embracing UncertaintyAn IBM colleague, Jim Densmore, has the phrase 'Embrace Uncertainty' below his email signature. I know Jim well enough to believe I know what he means. In fact, I used to give a presentation with the that title. The idea is that uncertainty is an aspect of the world as it is. If you constantly deny uncertainty and expect to be able to predict the future as if it were certain, all sorts of disappoints ensue. If, instead, you understand and accept the uncertainty, you are more in harmony with the world. Uncertainty is not your enemy, it just is a part of life. What brought this mind is that one of the world's leading poker players, Annie Duke, used the phrase in the latest episode of Radiolab, one of my favorite NPR programs. She explains how embracing uncertainty is the key to being a great poker player, not gimmicks like reading 'tells'. Follow the link and check it out. Of course, readers of the blog know that I believe this applies to our domain. Developing software is systems is fraught with uncertainty. One should embrace it and learn to manage it by applying the right analytics.

Eliciting 90% confidence Triangular Distributions
mcantor@us.ibm.com
Tags:
anything
triangular
estimations
distributions
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how
to
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In a previous entry, I discussed triangular distributions. I pointed out that they arose from the practices in Hubbard's How to Measure Anything. When making an estimate, one asks for the high, low and expected values of a quantity. These are used to to define a probability distribution by interpreting the results to mean that there is zero probability that the value is less than the low or greater than the high and the mode of the distribution is at the expected. You get a distribution like the figure below. A reader, Blaine Bateman, president of EAF LLC, found the elicitation question too restraining. After all, saying there is no probability of a value being below the low may call for an unreasonable level of certainty. He prefers asking the asking the question, "Give me low and high values that in which you are 90% confidence." This raises an interesting (at least to me) mathematical question, "Can you specify the triangle given the mode and the 90% of the distribution". That is, can you specify the triangle given points c and d rather than a and b. Blaine has a couple of solutions based a choice of addition assumptions you need to make to get a unique solution. His paper is found following this link. I recommend it, It is a nice piece of work.

What is a Commitment?
One of the things that characterizes software or systems development is that the project manager routinely commits to deliver certain functionality on a given date at an agreedupon level of quality for a given budget. It is the role of the project manager to make good on the commitment, The software and systems organization leadership may count on the commitments being met in order to meet their business commitments or there may be an explicit contract to deliver on time for a fixed budget. The measure of a good project manager is the ability to make and meet commitments.
iIn this blog entry, I will discuss the nature of that commitment and how it relates to project analytics. First of all, lets define 'commitment' in this context. Of course, I do not mean the confinement to a mental institution, I mean, as suggested above, the promise to deliver certain content with acceptable on or before a certain date.
The first thing to notice is that the future is never certain, and so we are in the realm of probability and random variables, i.e. a quantity described by probability distribution. Going forward, I will assume the reader is familiar with the concepts of random variables and their associated distributions . Soon, I will devote a blog entry just that topic.
Meanwhile, the best way to describe the likelihood of meeting a commitment is the use of a random variable. Consider the distribution of the time it will take to meet the commitment. It might look something like this: A similar distribution would apply to cost to complete. Recall, the probability then of the commitment being met is the area under the curve that falls before the target date: The manager, in making the commitment, is essentially betting (perhaps his or her career) that he or she will meet the commitment. According to this measurement, the odds are about 5050. The key measurement then is the amount area of the random variable that lies prior to the target date, which in turn relies on the the ability to calculate the probability distribution. I also will discuss some techniques to do that in a later entry. Now consider for example, "project health". What I believe what is meant is the likelihood of meet the commitment to deliver the project on time. If it highly probable the project will ship at the target date, the project is 'green' otherwise it is 'yellow' or 'red' like in the following figure.
There are three reposes to a yellow or red project. One can move the target date, move the distribution, or change the shape of the distriburion, again a topic for a later bog.

Analytics Requirements Analysis Practice
First, I am pleased that many saw the humor in the April fools posting. That said, I wonder if there will be ever quantum project management. Also, I fear this blog lacks humor. I will do what I can, but there is only so much that can be done to spice up the topic of analytics for software and system organizations. So, back to the serious stuff.
But first a joke that I believe that dates back to vaudeville: Onstage, there is a streetlight. Under the streetlight, there is a man crawling around on hands and knees. A policeman walks up and asks what he is doing. The man says he is looking for his keys. The policeman asks if he is sure he lost them here. The man answers, "No, in fact I lost them down the street." The policeman asks why is he looking under the light. The man answers, "The light is brighter here." OK, not so funny. So what's the point? A while back, I was discussing a client's management program with a colleague (who will remain nameless and I hope is reading the blog). I pointed it would not serve any purpose. My colleague answered "Well at least they are measuring something." I retorted, "First, you need to figure out what you need to measure, then figure out how to do the analysis and get the data." We left it at that. More generally, software and system organizations often measure what is easy, not what they need. They look where the light is brightest. We still have the question how to specify the needed measures, analytics, and data collection program. In an earlier entry, I proposed some measurement principles. While these principles are sound for assessing a measurement and analytics program, they do not provide operation guidance for defining the set of measures, associated analytics, and data. What is also needed is the analytics version of a requirements analysis. Last Friday two colleagues (named Clay Williams and Peri Tarr who I believe do read the blog) introduced me to the Goal Question Measure (GQM) method. This method has been extended in various ways such as GQM+Strategy. I have seen the method applied. It looks much like functional decomposition and so it is a requirements analysis technique for analytics solutions. I think it should be extended to include identification of the data sources. So we would have GQMAD (not kidding), my spin on the main idea:
For my waterfallphobic friends, I share the concern. Building an analytics solution this way should be more iterative than is described above. Probably something like the Unified Process can be applied using GQMAD as a good requirements practice. Anyone out there with GQM experience they would like to share? 
Task estimation, meritocracy, and oppression
Last week I briefed an IBM customer on some of our recent thoughts on the role of estimation in business analytics. I feel the briefing was not entirely successful. The customer asked about a use of estimation I had not considered previously My first reaction is that the approach desired by the customer was 'not possible'. I then realized it might work in some cases, but I was emotionally opposed to the idea. Then I realized I should not let my emotions interfere and think through the question and its implications. Hence this blog:
In Agile projects or in maintenance organizations, workers are assigned 'work items'. Often workers are asked to estimate the time it will take to complete the work item. Asking an employee to commit to a timetocomplete is both reasonable and unreasonable. Team leads and managers need to have some idea when the current work will be done to plan resource assignments, manage content, make commitments and the like. The management also wants to identify the more reliable, productive workers. After all, development teams are meritocracies. It is right that the more productive employees are identified and rewarded. So we need a way for employees to make reasonable estimates while providing a way for (cliche aler!) the cream to rise. It is unreasonable in that the worker is asked to guess and, in fact, commit to a time to complete. In some cases, the worker may be confident in the estimate. In some cases, there will be less confidence for a variety of good reasons: The task may have dependencies, the solution to fixing a bug report may not be apparent and so on. So asking to commit to a fixed time is unreasonable and measuring the worker against these commitments is oppressive. Under these circumstances, the intelligent worker will pad the estimate so to insure that the commitment is meant. This unintended consequence of asking for the duration is longer than needed estimates and, since people work to the commitments, lower productivity. In the Agile Planning feature shipped in Rational Team Concert (RTC), we provided means to somewhat mitigate this phenomenon. RTC provides the mechanism for letting the worker enter the best case, likely, and worse case for the time to complete the task. This way the worker can enter numbers that reflect her or his uncertainty. This supports more reasonable commitments and less adversarial conversations. In the tool, the numbers are rolled up using a Monte Carlo algorithm that accounts for task dependencies and shows the likelihood of completing the iteration or scrum. A benefit of this approach is that the worker can be held accountable not to a single value, but to staying within the range of estimate and so need there is no need for padding. There remains the problem of knowing if the estimate is reasonable and how to find the meritorious, which finally brings us to the client request. The client asked if we could turn this around. Could we use some sort of algorithm to compute the expected time to complete for the task? In other words, the system tells the worker the amount of time it should take to complete the task and the worker then is measured against this expectation. As I said at the beginning of the blog, my first reaction is 'probably not' and this is undesirable. Lets dive deeper. First, like the RTC agile planner, this computation can and should include some best, likely, and worse case in order not to be overly oppressive and roll up to show iteration and/or project schedule risk. Further, building out this approach raises the following statistical question: "Can we sort work items into equivance classes of similar enough tasks, so that we use these classes as populations to build timetocomplete statistics?" If we could do this, then we could properly set expectations on the worker, detect the superior and inferior workers, reward the former and better train the latter. Further, we could measure improvements over time in the execution of the tasks due to team or proecess improvements. All good things. However, this approach needs to be implemented very carefully and not over applied or it could lead to more oppresion and untended consquence. I suspect the more creative architecture and design tasks simply do lend themselves to this sort of analysis. So teams that create new platforms and build new applications will rely more on expert opinion for the estimates and not predictions solely based on historical data. Not everyone would agree with this. For example, there are some estimation tools provided by various vendors that in fact do try to estimate design and architecture tasks effort and duration by using parametric models or classifications. However, there is so much variation in the amount of novelty of the efforts and the team skill and experience, the uncertainties in the estimates are large enough that they that they should be applied to projects with great care and to individuals not at all. On the other hand, most of what development organizations do is more routine and for those tasks something along the lines of what the customer asked for might be possible. One would need a way of characterizing the different task classes, track the timestocomplete and do the statistical measures. With this in place, one could explore not only automated task estimates, but also process optimzation by what I believe is a novel application of statistical process control. In summary I believe we need to pursue task analytics and estimation, but I have serious misgivings. Automated analyticsbased business processes can go seriously wrong. We need to ensure that some judgment and subjectivity is part of the process. The misuse of analytics in the subprime mortgage business is a case in point I realize something along the lines I am describing may already be available. Has anyone heard of a tool that supports this method? 
A technical whitepaper on ROI for Software and Systems Programs
Some business analytics for development organization entrail measureing return on investment for software and system programs. I just finished a long version of our RoI approach. This is a link to a more technical version of the paper.. 
Outcomes and controls
I would like to build on the theme of reasoning about what to measure. The goal of business analytics is to track what matters to the organization (what it is you are trying to manage) and respond to the measure in some way to gain improvement. The science of measuring outcomes and In manufacturing and some service delivery domains is statistical process control (SPC), SPC lies at the heart of the Six Sigma movement. Even so, there will be no need to have a 6six sigma belt to participate in this discussion . While there is reason to believe that not all of the Six Sigma practices do not apply all that well to our domain, the idea of tracking outcomes, applying statistical analysis to detect change change, and applying some sort of controls to affect the change applies in all business domains, including software and system development and delivery.
Briefly then, the outcomes are the operational goals and controls are the actions you take to achieve the outcomes, So naturally we need too kinds of measures.
The simplest way, for me at least, to think about SPC is to measures trends in outcome measures and control measures to determine the likelihood that the controls are in fact affecting the outcome. In our potato chip example we might find that we cannot control the outcome well enough by the shaker and belt controls. In that case, we might look for some other factor to control, say the factory humidity. If you look at many measurement programs in software and system you often find that outcome and measures are confused. In fact even sorting the measures into the two buckets is hard. No wonder measured process improvement for our domain has been so hard.Anyone have good examples of measurement patterns or antipatterns of measuring controls and outcomes? Again stay tuned for more.... 
Moving my blogAs readers of this occasional blog know, this blog has been less of a 'web log' and more a series of small essays on the topic of development analytics. I have decided to start writing less formal entries more frequently and have realized I would be comfortable doing that on my own web site, murraycantor.com. I want to be entirely clear. IBM has in no way looked over my shoulder in the writing of the blog and has been very generous in providing me a forum. Nevertheless, I will be freer sharing my opinions when there is no opportunity of confusing my often idiosyncratic opinions of those of the company's. So check out the new blog at www.murraycantor.com/blog. I hope to write something at least twice a month, maybe more often. Meet you there and thanks!
Murray 
Self Insurance and Technical LiabilitySince the last entry introducing the concept of liability, I have had the opportunity to discuss it on several occasions colleagues in IBM, In the course of this discussions I formulated what seems to be a useful way to explain the idea. In particular, I presented this idea at the Managing Technical Debt Workshop held on October 9. The following is a preview of what I will present as a lightning talk at the Cutter Consortium Summit next week. Imagine an insurance agent comes into your office with the following offer: "Our company will indemnify your code against the following risks:
The policy will only cost $X a year. You realize that code insurance is much like auto liability insurance. In the auto case, the insurance protects you financially against the possible unfortunate outcome of driving the car, in the code case the insurance protects you against against some unfortunate outcome of running the code. So code liability insurance is like automobile liability insurance. This leads to the definition: 'Technical Liability' is the financial risk exposure over the life of the code. (Thanks to my colleague, Walker Royce, for this crisp definition.) Note auto insurance and code insurance have some significant differences.
Generally, firms faced with assuming a liability have a choice: Either they buy a policy indemnifying them against the risk or they selfinsure. When they self insure, it is often reported in the annual reports. If you ship software, you are assuming a liability. As far as I know, code insurance is either rare or nonexistent. If it did, the cost of the policy would be charged against the financial value code. So we are left with selfinsuring, Here is the main point. In order to truly assess the economic value of the code, one should, as best one can, estimate the technical liability and a fair price, X, for the indemnification. Even a rough estimate of X is better than ignoring the liabilities assumed by shipping code. So how to estimate X? My first observation should be of no surprise to readers of this blog. Since technical liability involves the future, there are a range of outcomes of future exposure, each of which has some probability. Technical liability has a probability distribution and so is a random variable. X is a statistic (perhaps the mean) of the distribution. As suggested above, code liabilities comes in flavors: There are exposures resulting from security, reliability, integrity, and so on. Each of these flavors is characterized by its own random variable. The overall liability is the sum of the liabilities that apply to the particular code. As I mention in a previous entry, this sum of random variables is also a random variable found using Monte Carlo simulation. Now, reasoning about code liability is not unprecedented. Car manufacturers estimate warrantee exposure, telephone switch manufacturers reason about the economic value of going from .99999 reliable to .999999 reliable. There are Bayesian models of the likelihood of a security breach. To estimate technical liability, we need to agree upon the taxonomy of flavors of liability, not a daunting task, and then assemble good enough models of each into an overall framework.

Technical Liability: Extending the Technical Debt MetaphorOver the last couple of years I have been more or less following the technical debt community's discussion on what exactly is technical debt. Some ague that technical debt is limited to what it would cost to address deficiencies such as those found by code inspection tools such as Sonar. Other writers such as Chris Stirling introduce aspects or kinds of technical debt: quality debt, design debt; .... My interpretation of the Ward Cunningham metaphor on incurring debt by shipping is broader, including the wide range of afterdelivery costs. This entry is continue that discussion and suggest one path forward. I argued that technical debt should reflect the fact that the very act of shipping software incurs all sorts of possible liabilities, any one of which may incur some future cost.
The nature of the liabilities very from domain to domain. Shipping the next rev of a mobile game like angry birds entails much less liability that next rev of avionic software for a commercial jet. The costs of fixing the code may be the least of it and underestimates the assumed labilites. Reasoning about whether these liabilities outweigh the benefits of shipping the code is key to the ship decision. Since I wrote that entry I have been watching the technical debt space and see that I may be the minority, but not alone, with this perspective, Some people argue that technical debt is solely the cost of addressing shortfalls in the code. Others adopt a broader definition. In fact, in a conversation I had with Capers Jones, a longtime expert in software measurement, he shared a conversation he had with Ward discussing the same points. I have seen others make a distinction between software debt and technical debt. I have decided not to weigh in on this argument, but suggest we call all of the liabilities, (wait for it ...) technical liability. There is a key difference between standardlydefined technical debt and technical liability: Technical debt involves code quality and can be determined. The liabilities involve possible future events and so entail predictions of the future. Some might even consider technical debt knowable and technical liability unknowable. Readers of this blog know where I am going. Technical liability, unlike the more limited technical debt, involves a range of future possibilities and so each of the components of liability should be specified as a random variable with a probability distribution. The security violation might or might not occur. But if it does, the possible expense could sink the company. Reasoning about the risk takes some advanced techniques like setting the price of an insurance policy. Finally, the economic decision if it makes sense to ship a piece of software, one needs to balance the value expected from the ship against the assumed liabilities. Note that the future value is also a random variable. In that case the decision to ship should be based on the techniques found here. I will elaborate the reasoning ibehind technical liability n a future blog (promise). In summary then, technical liability gives a more complete picture of the economics of shipping a piece of code than technical debt, but it requires more sophisticated analysis.

Introduction to Prediction PaperAn ongoing theme of this blog is that development processes differ from other business processes in that there is a wide range of uncertainty inherent in the efforts. It follows that tracking and steering development efforts entails ongoing predicting, from the evolving project information, when a project is likely to meet its goals. Late last year, Nate Silver author of the Fivethrityeight blog and well know predictor of elections published The Signal and the Noise, a text for the intelligent layperson on how prediction works. I was impressed by the book as it explained the principles behind the sort of Bayesian analytics we need for development analytics without any explicit math. However, I felt for the folks in our field would greatly benefit by having the mathematical blanks filled in. So I decided to write a series of papers introducing the topics to folks who had some statistics and maybe some calculus in college, but not a solid background in prediction principles. The first in the series is now online: Filling in the blanks: The math behind Nate Silver's "The Signal and the Noise" Part 1. It presents the very basics of Bayesian analysis. I hope you all find it useful and especially hope you find it interesting. 
A video demonstrating a tool applying predictive methods to Agile efforts
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In my last blog, I laid out a vision of how a project lead and her stakeholders might use the predictive analytics to drive to better project outcomes. As I mentioned in the entry, IBM Rational is work on such a tool. A demonstration of this tool is found here: Agile Development Analytics Demo. The video was created by Peri Tarr, the lead architect on the project. Some of you might notice that the terminology and development process described in the demo is at odds with your understanding of Agile. We do understand that and currently we are working on making a robust tool that accommodates a wide range of processes for what might some might call 'pure Agile' to various hybrids we are discovering in the market place. In the next blog, I will explain more on how the tool works. 
A predictive tool for Agile efforts To now, this blog has been a series of essays on the theoretical considerations underlying the analytics of development. With this entry, I want to start changing the emphasis to the practicalities of building analytic tools. Going from theory to practice raises all kinds of issues: data content and formats, robustness of algorithms, reinforcing agile practices, .... To start that discussion, lets start with an epic on how an analytic tool for agile teams might work: A lead of an agile team, call her Shirley. has been asked to deliver a mobile application, with a specified set of features, in time for the next world games, which is one year away. Understanding that the future is uncertain, Shirley treats the time to complete as the random variable. Before committing to the project, she needs an initial distribution of the time to complete the project. With such a distribution, she has a view of the probability of achieving the goal. It is the area under the distribution curve that lies to the left of the target date in Figure 1. Figure 1. Probability distribution of delivering the Shirley’s Mobile app project Fortunately she has tool called 'ARaVar' to help her build and maintain this distribution. This tool is federated with her OSLC agile project environment, Agilista (a fictional product). To use ARaVar, the team estimates the level of effort required for each feature using planning poker. In particular, for each feature’s level of effort the leadership team agrees on three values to enter in Agilista:
Behind the scenes, the ARaVar finds these inputs to in Agilista and uses them to define triangular probability distributions. In particular, AraVar interprets these effort inputs as saying
So ARaVar sets the distributions to be zero below the low value and above the high value, with a peak at the expected case. Figure 2 show the resulting triangular distribution, setting the high and low to zero and setting the peak (expected case) so that the total area of the distribution in one. Figure 2: Typical triangular distribution for each feature. In the parlance of Bayesian reasoning, this technique provides the subject matter experts a means of arriving at an honest prior, based on current information and informed belief. If the difference between the low and high of the distribution of a feature is large, then the team is expressing its uncertainty of the effort required to deliver the feature. This gives Shirley’s team the opportunity to focus the team on resolving the uncertainties early, progressively derisking the project. With this prior estimate in place, Shirley has an idea of how likely it is she can make the commitment and she negotiates the content. Whatif analysis in ARaVa provides her with capability to compute the impact of adding, changing or dropping one or more features from the program. Luckily, she does find that one of the relatively uncertain features is more of a nicetohave than a musthave and adds considerably more risk than value. So she negotiates that feature out of scope for a firmer commitment to an earlier delivery in 11 months as illustrated in Figure 3. Figure 3: The negotiated delivery commitment: earlier and more predictable. So Shirley now is in a good place. She has agreement on the scope of the project between her team and her stakeholders. She feels her team has a good chance of delivering on time. In the Agile fashion, work proceeds by establishing work items to deliver the features. These work items are scheduled for iterations/sprints, on an ongoing basis. As the team completes work items, they not only have less work to complete, but also have a track record of the actual time it takes the team to complete work (called team velocity). From a Bayesian perspective, these constitute important evidence of how well the project is actually executing. ARaVa queries Agilista for the completion status of the features, the work item burndown history, and updated efforttocomplete estimates for the remaining features. ARaVa uses modern predictive algorithms to update the time to complete distribution. With these ongoing predictions, Shirley can discuss with her team, and external stakeholders, whether the odds of meeting the commitment are improving (as they should) or degrading. If the later is the case, she can use ARaVa to predict the impact of managing content (decommitting features) or adjusting resources. For example, the tool revealed that one feature was very much at risk. In discussion with the stakeholders, it was decided that this feature was necessary and so it was decided that for the next sprint there should be more resources focused on the this feature. Some staff were assigned to the team for just that sprint. With ARaVa, all stakeholders can have a more honest and trustworthy discussion on how best to proceed. ARaVa does not yet exist, but it is not a dream. IBM Rational and Research are now in the process of developing such a tool for a possible delivery next year. We are calling the project AnDes (for Analytics of Development). AnDes uses state of the art learning algorithms. We do have working versions federated with Rational Team Concert (We did show a preview at last year’s Rational Innovate). In addition to consideration of automating the data collection, we are exploring how it can be applied across a wide range of projects:
We are looking for design partners now! Interested? Please let me know at mcantor@us.ibm.com.

Normal and Triangular DistributionsIn my previous couple of blog entries, I used triangular distributions for examples. For many who suffered through (or maybe enjoyed) their stat classes (what are the odds?), this might be a surprising choice. They were taught the default choice would be a Gaussian distribution. For those more attuned with modern business analytics, they are likely to be familiar with triangular distributions. In this entry, I'll briefly the reasoning beyond each of them. First, as you hopefully recall, both are distributions associate with random variables (Those who don't recall migh benefit from the series of tutorials at The Khan Academy site). Each are nonnegative functions with integral (area under the curve) one. (There are fancier mathematical definitions, but no matter.) Each describes the likelihood of each of set of possible outcomes of some random variable. The difference in shape between Gaussian (aka Normal) and triangular distributions reflects the nature and use of the random variables. Briefly, normal distributions are often arise as the histogram of a set of measurements. They have some central value (called the mean) and some dispersion (called standard deviation) around the mean. Anyone who took a stat class studied these distributions. They show up in a many contexts:
The likelihood of a value falling in a range is given by the area under the curve. For example, the probability of a value of the normally distributed random variable falling within one standard deviation of the mean is 68.2%. Normal distributions have one really cool feature called the Central Limit Theorem, which states that under remarkably general conditions, the sum of a set of random variables will be close to normal. Notice, in the previous blog entry, when we added two triangular random variables, the sum appeared smooth and in fact started to look normal. All that said, I do have have a pet peeve. Normal distributions are overused. Most things in nature and economics are not normally distributed. For example, as as documented in Wikipedia, these phenomena are nowhere near normal, but are closer to a Pareto distribution:
Getting back to our topic, let's turn to triangular distributions. They are not used to describe a set of measured outcomes from an experiment. They are used to describe what we know or believe about some unknown random variable. For example, the sales of a new product one year after delivery generally can not be determined by measuring the sales of a bunch of new products. As pointed out by Douglas Hubbard, treating the future sales as a single fixed variable is unreasonable (although all too common). What is more reasonable is setting the low (L), high (H) , and most likely (E) values of the future sales. As I wrote in an earlier entry, these are the values that specify a triangular distribution. I.e. triangular distributions are set to zero below a given low value, L, and above the high value, H, and peaks at the expected value E. The distribution is then a describe be a triangular curve so that the total area is 1. Here is the distribution for L = 1, E=6, and H=7. Some would argue there is a 'real' distribution of the future sales random variable and it is unlikely to be triangular. My response is for all practical purposes, it does not matter. The triangular distribution is a goodenough approximation to whatever the real distribution might be. By 'good enough' I mean they may be used to support decision making: they are a big improvement over using single values. They are also practical as they easy to specify and there is no assumption of symmetry, No wonder they are common in business analytics. To wrap up, normal distributions are occasionally useful to describe outcomes of measurements while triangular distributions are useful for giving rough estimates of one's belief of the liklihood of outcomes based on the evidence on hand. More generally, normal distributions are useful in frequentist statistics and triangular in Bayesian statistics. See this Wikepedia article for a discussion of the kinds of statistics. Much of what we do in development analytics is more Bayesian than frequentist. I hope to write more about that in the near future. 
Probability Distributions ExplainedWhen I started this experiment in blogging, I wrote that I am not a natural blogger. I am not the affable, chatty web presence who on a daily or weekly basis shares one's thoughts. I have learned since then what kind of blogger I am. My style is to write little essays that might take weeks to prepare, given the priorities of my day job. I have also found I do enjoy writing the blog as it gives me a chance to share some issue that is top of mind. So here goes: A few weeks ago, my good colleague displayed a chart in one of his PowerPoint decks entitled something like "How to Understand Murray." The chart was an explanation of probability distributions. It was both flattering and a bit of a wakeup call. As Arthur mentioned and the readers of this blog know, much, if not all, of my writing assumes an understanding of probability and probability distributions (aka probability densities). My experience in discussions with folks from our industry is that most of them have vague memories from some stat class in college and so can generally follow the discussions, but most could use a refresher. I could simply refer readers to a good Wikipedia article, but, instead, let me given a domainspecific example. Let's go with a topic I wrote about in a previous entry: time to ship. For explanation purpose, let's take a fictional example. Suppose you are starting a project expected to ship in 110 days. That said, we cannot be 100% certain of being ready to ship on exactly that day, no sooner, no later. In fact, it is very unlikely we will exactly hit that day. Maybe we will be ready the day before, or maybe the day before that. Since being ready on or any day before day 110 is success, we can sum up the probabilities on being ready on any of those days to get the probability we really care about. All that said, the probabilities for each of the days matter because we need them in order to get the sum. The set of probabilities for each of those days is the probability distribution or density that is our topic. Let's look at a simple example. In this example of a triangular distribution there is 0% probability that the product will be ready before day 91 and we are 100% certain we will be ready before day 120. We think the days become more probable and reach a peak as we approach day 110 and fall off after that. This graph then shows the probability, day by day, of being ready on exactly that day. You might notice that the peak is less than 0.07 (actually 0.06666...). This makes sense since we are assuming that the project may be complete on any of 30 different days and so the densities would be in the neighborhood of 1/30 = 0.03333. In our case, some are above and some below. These distributions are the basis of calculating the likelihood of outcomes. The principle is very simple: The probability of being ready within some range of dates is the sum of the probabilities of being ready on exactly one of those dates, i.e. , we add up the density values for those days. As I explained above, if we want to compute the probability of being ready on or before day 110, we would add up all of the densities for days 90 to 110 to get 0.7. Using the same reasoning the probability of being ready on some day before day 120 is the sum of all the densities which comes to exactly 1.0, which was one of our going in assumptions. In fact the property that the sum of densities for all possible outcomes equals 1 is a defining property of distributions. Those who want to try this out at home could use this spreadsheet.. For example, can you find on what day, being ready on or before that day is an even bet? For most development efforts, the overall state of the program (some would say 'health') is characterized by the shape of the distribution, This shape changes every day. Every action the team takes changes the shape. So, one key goal of development analytics would be to track the shape of the distribution throughout the lifecycle, a daunting task. More on this (probably ) in future postings. 
Garbage in, Garbage out
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One of the common criticisms of estimation methods is that the calculation is no better than the assumptions: garbage in, garbage out (affectionately known as GIGO). That is, if you make poor or dishonest assumptions then you will get misleading forecasts. It is especially egregious that occasionally someone might take advantage of the system by gaming the system and intentionally feeding assumptions that lead to false forecasts to get a desired business decision.
However, estimation is an essential part of any disciplined funding decision process (such as program portfolio management). The funding decision relies on estimates of the costs and benefits. But for reasons just described, estimation is suspect.
So, what to do? I suggest the answer is not to abandon estimation; the answer is the not input garbage, or if you do, detect it as soon as possible to minimize the damage.
First note that the future costs and benefits are uncertain,
so any serious approach to the GIGO
problem is to treat the assumptions as random variables with probability distributions and work from there. Generally, this allows one to use the limited information at hand to enter the assumptions and calculate
the forecasts.
Douglas Hubbard, in How to Measure Anything, gives us one way to proceed. Briefly, when an uncertain value is needed, ask the subject matter expert (sme) to give not one but three values: low, high, and expected. The three values may be used to specify random variables with triangular distributions [ref].
In this case, the greater the difference between the high and low values, the wider the triangular distribution of the estimate reflecting the uncertainty of the sme who is honestly making the assumptions.
One can use the random variables as values in the estimation algorithm using Monte Carlo by repeatedly replacing the single values with sampled values of the triangular distributions and assembling the distribution of the estimated value. Note the estimate is again just as good as the assumptions, however we assess our faith in the estimate by the width of the 10%90% range of its distribution.
For example, one might estimate to the total time for completing s project by a project by entering, for each task, the least time, the most time, and the most likely time. Then one could apply Monte Carlo simulation or more or more elementary methods to rollup the estimates to compute the distribution of the time to complete.
Hubbard goes further by suggesting that as actuals in the assumptions come available to review if they fall within the 10% 90% range of the initial distributions. If they do, fine. If they don’t, questions are asked about the underlying reasoning and beliefs. Over time the organization becomes more capable and accountable at making good assumptions.
Further, we can also deal with the garbage in garbage out problem by using actual data whenever possible. There are at least two techniques.
In the first, as actuals in the assumptions become available in the, they can used to replace the distributions. For example if there are monthbymonth sales projections captured as triangular distributions to forecast sales volumes, the distributions are replaced by the actual sales numbers. Also, one should update the remaining triangular distributions reflecting the actual sales trends. The resulting estimate will usually have a narrower distribution.
A second technique is Bayesian trend analysis. In this case we use actuals for evidence of the estimate. For example, if a project were on track, then we can expect that certain measures, such as burn down rate and test coverage reflect that. If a project were to ship on time, the number unimplemented requirements would be going to zero, Similarly, the code coverage measure would be trending towards the target. So these measures are evidence of a healthy project. Using Bayesian trend analysis, we can turn the reasoning around and update the initial (prior) estimate of the time for completion using the actuals as evidence for an improved estimate. The result is an improved probability distribution of the time to complete the project. As more actuals become available, the distribution becomes narrower, increasing the certainty of the forecast.
This way one can detect early if the system is being gamed and at the same time, use the actuals to estimate the likelihood of an ontime delivery.
So generally, one can use actuals to not only improve the
estimation process as Hubbard suggests, but also to apply Bayesian techniques,
to improve the estimates of the program variables. 
Managing commitments
In the previous entry, I introduced a probabilistic view of a commitment. The main idea is that when you commit to deliver something in a future, you are making a kind of bet. The odds of winning the bet is the fraction of the distribution of the time=todeliver before the target date. For example, in the following example, the project manager has a 47% likelihood of winning the bet.
The raises a couple of questions. First, how is the distribution of timetocomplete determined? There are variety of methods to estimate time to complete of an effort. I am not taking a position on what method to adopt. The important point is that the estimation method should not return a number but a distribution! The major estimation vendor have this capability even if it not always surfaced. I will expand on this point in the next blog entry. For now, the key point is that you should be working not with point estimations, but with the distributions.
Second is how the project manager affects the shape and position of the distribution and therefore affects the odds. Some of the techniques are intuitive, some not so much, There are two things one might do: move the distribution relative to the target date, and change the shape if distribution typically narrowing it so that more of it .lies within the target date.
In the first, one can either move the target date out, so that the picture looks like this
This is, of course, intuitive  moving out the date lowers the risk. Another intuitive thing a project manager might do is the descope the project  commit to deliver less functionality. This may have two effects on the distribution: It will move it to the left as there will be less work to do. Depending on the difficulty of the descoped feature, the descoping may also narrow the distribution. By removing a difficult to implement feature. one is more certain of delivery, narrowing the distribution, removing risk resulting in this diagram:
Figure 3
Now comes the unintuitive part. Suppose the target date and content are not negotiable. What is a project manager to do then? The idea is to take actions that will narrow the distribution in Figure 1 so that it looks like
Figure 4
How is this done? Many project managers, in the name of making progress choose the easiest functions to implement first, "the low hanging fruit". However, by doing this the shape of the curve in figure in minimally affected, The less intuitive approach, Following the principle of the Ration Unified Process, is to work on the most difficult, riskiest requirements first! These are the requirements of which
the team has the least information and so should tackle first in order to have time to gain the information needed to succeed. Putting off the riskier requirements and doing the easy stuff first gives the appearance of progress, but by putting off the riskier requirements, one will run out time to do the riskier requirements and fail to meet the commitment.
All this has to be while ensuring their is sufficient time to fulfill all the requirements, risky or not. So in the end, one must account for both the time to complete tasks and their uncertainty to meet commitments. Some techniques for doing that will be discussed in the next blog entry. 
ROI of software and system programs article published
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In an earlier blog entry, I mentioned my article Calculation and Improving the ROI of Software and System Programs. I am pleased to announce to that it has been published in the September 2011 issue of the Communications of the ACM.

Estimating Nuclear Safetyis Really Hard
I know. It has been a long time since my last posting. Over the last few months, nothing much happened that prompted an entry. I was thinking of writing something sort of philosophical on the nature of estimates, but never got to it. Then there was the tsunami and the associated nucler reactor failures at the Fukushima power plant. Suddenly, the topic became more urgent. This is relevant to this blog, because our domain includes the engineering and economics of safety critical systems. Presumably the nuclear reactor industry uses the state of the art methods. I have been exploring what is going on there and while, I am far from an expert, I have found out some things worth sharing in a blog. 
Risk, Value. and BPIt should not be a surprise that I have been following the BP oil spill with much interest. In fact, as I starting typing this entry, I was watching the grilling of the BP CEO, Tony Heyward, by Congress. Rep. Stupak is focusing on the BP’s risk management. Some of you have read my earlier posting on my thoughts of the BP decision process that led to the Deepwater Horizon blowout. So far, information uncovered since that posting is remarkably consistent with my earlier suppositions. In this entry I would like to step back a bit and discuss what broader lessons might be learned from the incident. While it is all too easy to fall into BP bashing, I would rather use this moment to reflect more deeply on risk taking and creating value. (BTW, some of you might now that my signature slogan is ‘Take risks, add value’.) In our industry we create value primarily through the efficient delivery of innovation. Delivering innovation, by definition, requires investing in efforts without initial full knowledge of the effort required and the value of the delivery. This incomplete information results in uncertainties in the cost, effort, schedule of the projects and the value of the delivered software and system, i.e. cost, schedule and value risk. Deciding to drill an oil well also entails investing in an effort with uncertain costs and value. In this case, the structure of the subsystem and productivity of the well cannot be know with certainty before drilling. As I pointed out in an earlier blog, a good definition of risk is uncertainty in some quantifiable measure that matters to the business. So in both our industry and oil drilling we deliberately assume risk to deliver value. So, what can we learn from the BP incident? Briefly, one creates value by genuinely managing risk. One creates the semblance of value for a while by ignoring risk. Assuming risk, investing in uncertain projects, provides the opportunity for creating value. That value is actually realized by investing in activities that reduce the risk. The model that shows the relationship is described in this entry. So, reducing risk has economic value, but reducing risk takes investment. In the end, the quality risk management is measured with a return on investment calculation. This in turn requires a means to quantify and in fact monetize risk. I wonder what was there risk management approach was followed by BP. A recent Wall Street Journal article suggested they used a risk map approach – building a diagram with one axis a score of the ‘likelihood of the risk’ and the other a score of the ‘severity of a failure’. So with this method, they would score the risk of a blowout as very low (based on past history) with a very high consequence. So, such a risk needs to be ‘mitigated’. (Some actually multiply the scores to get to some absolute risk measure.) Their mitigation was the installation of a blowout preventer. They could then confidently report they have executed their risk management plan. Note these scores are at best notionally quantified and not monetized. Paraphrasing my good colleague, Grady Booch (speaking of certain architecture frameworks), risk maps is the semblance of risk management. As pointed out by Douglis Hubbard in The Failure of Risk Management (and in an earlier rant in this blog), this sort of risk management is not only common, but dangerous: It is a sort of business common failure mode that leads to bad outcomes. Also, Hubbard points out, useful risk management entails quantification and calculation using probability distributions and Monte Carlo analysis. I would add that since risk management in the end is about business outcomes, risks need to be monetized as well as quantified. I am willing to bet a good bottle of wine that BP did no such thing. Any takers? The business common failure mode was overreliance on the preventers, even though there are several studies showing they are far from ‘failsafe’. Further, it appears BP assumed risk by consistently taking the cheaper, if riskier. design and procedure alternative, the one with greater uncertainty in the outcome, even when the cost of an undesired, if unlikely, outcome was possibly catastrophic. The laundry list of such decisions is long; some outlined in Congressman Waxman’s letter to Tony Hayward. CEO’s of Shell and Exxon testified before congress that their companies would have used a different, more costly designs and followed more rigorous procedures. According the congressional and journalistic reports, this behavior is BP standard operating procedure. So BP assumed risk by drilling wells but did not invest in reducing the risk. For quite a while they got away with the approach of assuming but really reducing risk, and appeared to be creating value as reflected in stock and value and dividends to the investors. The BP management raised the stock price from around $40/share in 2003 to a peak of around of $74/share prior to the Deepwater Horizon incident. At this writing the stock is trading at $32/share and the current dividend has been cancelled. Investors might rightly wonder if there is another latent disaster and so discount the apparent future profitability with the likelihood of unknown liabilities. The total loss of stockholder value is over $100B, which is in the ballpark of the eventual liability of BP. So, whatever approach BP used to manage risk failed. BTW, some may recognize this same pattern in the management of financial firms that participated in the subprime mortgage market. In that case, they ‘mitigated risk’ by relying on the ratings agencies. Those who actually built monetized models of the risk realized there was a great opportunity to bet against the subprime mortgage lenders and made huge fortunes (See, e.g. The Big Short: Inside the Doomsday Machine by Michael Lewis .). Readers of the blog will notice a recurrent theme is some of the postings. It is essential that we assume and manage risk. To repeat a favorite quote, “One cannot manage what one does not measure.” The risk map, score methods, while common are insufficient to the needs of our industry; they do not measure, nor really manage risk. We as a discipline need to step up to quantifying, monetizing, and working off risk in order to be succeed as drivers of innovation. We need to step up to the mathematical approach found in the Douglas and Dan Savage’s (see this posting) texts. I came to this same realization probably a decade ago. I held off at first because I had not deep enough understanding of how to proceed, and I knew I would encounter great skepticism. I tested the waters in 2005 and posted my first paper on the subject in 2006. I indeed received a great deal of skepticism and resistance, but enough acceptance to go forward. I have learned some important lessons from all that. In my next blog, I will share my experiences of bringing more mathematical thinking to risk management for SSD. 
A case study combining GQM and outcome and controlsThis blog experiment seems to be working. The entries are gietting around 100 visits and growing  good enough to keep at it. I have found that writing the entries has given me the opportunity to clarify and express my thoughts. This entry is a case in point. We are deploying a BAO solution for the level 3 support organizations in our IBM India Software Labs. That deployment provides a case study in how to integrate two concepts I introduced in earlier blogs. This entry is longer than the others. I hope you find it worth the wait and effort to read. These frameworks address different aspects of the problem of using measures to achieve business goals by measuring the right things and taking actions to respond to the measurements. In fact, these frameworks fit together hand and glove. Recall that level 3 support teams provide fixes to defects found in delivered code. Each of the teams deals with an ongoing series of change requests (aka APARs, PMRs). An organization goal is to reduce the time to and cost of completion of these requests. To achieve the goal, they are adopting some Rationalsupported practices and supporting tools. So the questions that need to be answered are: 1. What is the time trend of the time to complete of the change requests? 2. What is the time trend of the cost to complete of the change requests? 3. In each case how would I know that some improvement action resulting in significant improvement in the trends? Now comes the hard part: determining the measures that answer the questions. The change requests come arrive somewhat unpredictably. Each goes through the fix and release process and presumably gets released in a patch or point release. So at any given time there is a population of currently open and recently closed releases. The measures that answer the question are a time trend of some statistic on the population on some population of change requests. Each of the change requests requires different amount of time and effort to complete. So to measure if the outcome is being achieved, one must reason statistically: defining populations of requests, building the statistical distribution of say time to complete for that population, defining the outcome statistic for the distribution. So we need to do things to define the measure: 1. Specify the population of requests for each point on the trend line 2. Specify the statistics on that population To keep it simple (as least as simple as possible), lets form the population by choosing the set of change requests closed in some previous period, say the previous month or quarter. To choose a statistic, one needs to look at the data and pick the statistic that best answers the question. Most people assume the mean of the time (or cost) to complete is the best choice. However, that choice is appropriate when the shape of the histogram of the time to complete is centered on a mean as is common in normally distributed data. One of the advantages of working in IBM is that we have lots of useful data. Inspection of some APAR data of the time to complete from one of our teams in the IBM Software Lab in India shows the distribution is not centered on a mean. and so reduction of the mean time to complete is not the best measure of improvement. We have looked at literally tens of thousands of data points for time to complete of change requests across all of IBM and have found the same distribution. For you statistics savvy, it appears to be a Pareto Distribution, but statistical analysis carried out by Sergey Zeltyn of IBM Research’s Haifa lab shows that this distribution does not well fit any standard distribution. A possible explanation is that is the time required to fix the defects is Pareto distributed, but since the resources available to fix them is limited, the actual time to complete is not pure Pareto. In any case, a practical way to proceed is to choose a simple (nonparametric) measure: width of the head, i.e. the time it takes to complete 80% of the distributions. So with this analysis in place, the organization decides to precisely specify the goal such as a 15% reduction in time and cost to complete 80% of the requests closed each month. So the outcome measures are the time it took to close and costs of 80% of the requests closed each month. Having chosen this measures, we are ready to identify the data sources and instrument the measures. So far so good. But wait, we still need to answer questions 3. As I mentioned, in order to improve the outcome measure and achieve the goals, the lab teams have agreed to adopt appropriate Rational practices and tools to automate certain processes. The practices were selection using the Rational MCIF Value Tractability Trees (a development causal analysis methed). Adopting and maturing the practices and their automations are the controls. Some control examples are automating the regression test and build process, and the adoption of a stricter unit test discipline to reduce time lost in broken builds. There are control mechanisms with associated control measures such as timetobuild, regression test timetocomplete, percent of code unittested, and a selfassessment by the team of their adoption of testing and build practices. To answer question 3, we need statistical analytics to determine if the changes in the control measures have had a significant impact on the outcome measures. Our Research staff has settled on those analytics, but I will discuss that in a later entry. This entry is already too long. This case study is both reasonably straightforward and far from trivial. It does show as promised that GQM(AD) and Outcome and Controls work together. I leave you all with a thought problem. How would you apply the pattern to teams developing new features to existing applications? 
About this blog
mcantor@us.ibm.com
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I am not a natural blogger, but do like to share thoughts with a broad community of folks with shared interests.
My longterm passion is how to enable organizations develop and deliver software and systems more effectively. I am thoroughly convinced that well organized, governed organizations not only deliver value to the businesses, but also enhance the lives of the staff. In such organizations, people get to work on cool things, innovate, work well with colleagues, and build a legacy by being a part of making things of value.I also am a mathematician by training. I am especially energized by the opportunity to apply mathematical reasoning to the improvement of software and system organizations. My current assignment is to lead the Business Analytics and Optimization (BAO) strategy for Rational. So, with this blog, from time to time, I will share my thoughts on BAO for software and system organizations. I hope this blog will be a catalyst for building a community. I especially look forward to comments and conversations. So stay tuned. 