Developing a probabilistic mindset is the ultimate secret to managing risks effectively and making reliable delivery commitments. Making probabilistic forecasts helps us maintain high levels of customer and stakeholder trust, satisfaction and retention. It also allows us to define service level agreements with more confidence and to deliver value to our customers in a consistent, predictable manner.

Every morning I drive my kids to school. It’s not really a school though; my kids are still 4 and 6. It’s like a kindergarten within the same building as the primary school. They have the standard bell rings to give the day structure and alternating classes with generous breaks in between. Of course, they get to play all the time (what a life), but it feels like school. I find it great because it means that when my kids start first grade, the whole experience will be much smoother.

The first class starts at 8:45. If you’re not there on time, the main doors close and you can’t get in anymore. As such, it is crucial for me to get there before 8:45, otherwise, I have to look after two little kids for the whole day, while trying to stay productive at work (spoiler alert: the latter is never successful).

Even though our school is pretty close – it’s located about 10 km away from our house – it can take anything from 10 to 40 mins to get there – it depends on whether there is construction work, a local street market or simply no suitable place to park. I didn’t make it once because of a major car incident and the traffic was horrible.

My point is, I never know exactly how long it will take to reach my destination. The outcome will often be different and the only thing I can do to achieve my goal is to make sure I leave home early enough to have higher confidence that I will arrive on time.

You can never have a 100% certainty about what will happen in the future. There are always multiple scenarios that may occur. There is no model that produces a single certain outcome that guarantees you will achieve your goal. 

The Flaw of Deterministic Estimations

The exact same principle applies when it comes to making delivery commitments. Traditional deterministic thinking has instilled deep roots in our mindsets. We have been committing to single certain delivery dates for so long. Being uncertain feels very uncomfortable.

The biggest problem with deterministic estimations is that we assume we know what will happen in the future with a 100% certainty upfront. It is effectively a waterfall approach to estimating. 100% certainty for the future does not exist in our world. Alas, no one has invented the magic crystal ball just yet. 

Knowledge work flows through a discovery process. We become more certain as time passes and we gather new information. We can only be 100% sure when we will deliver something at the moment we deliver it.

What Does It Really Mean to Have a Probabilistic Mindset?

So how can we make reliable delivery predictions when there is so much uncertainty that we have to deal with? The secret is to accept that uncertainty and manage it effectively. 

Even looking into the delivery time of a single story, it can get done in 4 days but it can also get done in 44 days. There is so much variability in the delivery time of an item you need to consider – the effort to complete the work, the coordination time within the team, any issues that may occur during development, blockers, bottlenecks in the system, additional work coming in between. The list goes on.

Having a probabilistic mindset, generally speaking, means accepting that there is more than one possible result that may happen in the future. To provide a reliable delivery commitment, you need to communicate a range of delivery dates and the probabilities that come with each of them.

Remember, the main purpose of making estimations is to manage risks effectively. There’s always risk involved and the most effective approach to managing realistic expectations is to quantify that risk by assessing the probability of achieving your goals. Every delivery prediction should communicate the risk associated with it.

Every time when you provide a delivery commitment, ask yourself, “What’s the chance of meeting that commitment”? If the approach you use to make delivery predictions doesn’t enable you to quantify that probability, it’s worth considering an alternative. 

Probabilistic Forecasting and Monte Carlo Simulations

Developing a probabilistic mindset is the first step towards providing a confident answer to the question “When will this be done?”. And it might be a challenging question if you don’t have the means to give a reliable answer.

David Anderson
Leader of the Kanban movement

"We spend too much energy speculating about the future, rather than studying the recent past and using factual data. We are too ready to believe that our newest work is unique and different when in truth it is much more similar to work we do regularly than we care to admit."

The best predictor of your future behavior is your past behavior. More often than not, your past is going to reflect the future, especially if you’re in control of your management practices.

Probabilistic forecasts are predictions based on your past performance data. The prediction is communicated as a range of values and the probability of those values occurring. Probabilistic forecasting is a faster, cheaper and much more reliable approach than deterministic estimating.

There is a tool at your disposal that will enable you to produce probabilistic forecasts. That tool is called Monte Carlo simulations.

Probabilistic mindset

Monte Carlo simulations use historical data to model the probability of different outcomes. The simulation is run many times using a range of possible delivery times based on your past throughput. Monte Carlo simulations produce probabilistic forecasts. 

The main benefit of using Monte Carlo simulations is that the method clearly defines the risk associated with certain outcomes. The percentiles on the distribution (50%, 70%, 85%, 95%, 98%) communicate the risk you’re managing. The probabilities that the simulation produces quantify that risk in terms of percentages.

The question now is how much risk you’re willing to take?

If you commit to the delivery date on the 50th percentile, you will be wrong 1 out of every 2 times. If you commit to the date on the 85th percentile, you will be wrong 1 out of every 7 times. If you go for the 95th percentile, the risk of failure drops down to 1 out of 20 times.

The higher the percentile you select, the more confident you can be when making your commitment as the lower the risk of failure will be.

Developing a probabilistic mindset will enable you to build a high level of reliability. It will help you set and manage realistic expectations.

You can be predictable in a probabilistic world. There are management practices that you can adopt to establish stable predictable workflows. If you’d like to explore our proven roadmap to optimize your delivery systems for predictability, I’d be thrilled to welcome you to our Sustainable Predictability program.

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