Once you have established a business value for your product or enhancement to your product, the next logical step is to determine how each user story contributes to the overall business value based on the team's velocity. The premise is simple. Every card the team completes in the sprint backlog brings the team one step closer to delivering the full business value.
In a way, Business Value is tied to the team's velocity. Therefore, the more cards you complete in a release, the more business value you earn per release.
Every user story in the backlog will need to be assigned a portion of the business value. It's kind of like cutting up a pie. There are many slices to the pie, but each slice makes up the entire expected business value. The slices can be the same size or different sizes.
There are two methods to distribute business value among user stories.
Equal Distribution of Value
With equal distribution, every user story gets an equal portion of the overall value. Let's say the business value is $100,000. You have 100 cards, so every card adds $1,000 in business value to the product when deployed.
You are distributing the business value to ALL user stories in the product backlog without considering releases or sprints. The business value is equally spread among all the user stories.
Sum up the business values of stories targeted for a release to determine the business value for a release. Here's an example of how to calculate the Equal Distribution:
Step 1: Calculate the total number of user stories aligned to the release.
Step 2: Calculate the total business value for the release.
Step 3: Divide the business value for a release by the total number of user stories. Each user story will get this value, and each user story will have the same value.
Example: There are 100 user stories in the backlog assigned to release 1. The backlog has a total business value of $50,000. 100 divided by $50,000 equals $500. Every user story in release 1 would be assigned a business value of $500. Every card in the release that deployed to production would earn $500 in business value.
Story Point Distribution
Story Point Distribution is based on the team's story point estimates during sprint planning. A high story point value would translate into a larger portion of the overall business value. This would mean that complicated or complex user stories with more story points would get more business value than easy-to-finish user stories.
Critical components of Story Point Distribution are criteria (what), method (how), and event (when). The "what" or criteria are story points. The "how" or method is the process to assign the business value to a user story. The "where" is the event (typically set in sprint planning). The formula is:
Step 1: Calculate the total number of user stories aligned to the release. Calculate the total number of story points those cards represent. Example: 10 user stories have a total of 50 story points.
Step 2: Calculate the total business value for each sprint by taking the business value of a release and dividing it by the number of sprints planned for the release. Example: Release 1 has six planned sprints. The total business value of the release is $60,000. Divide the total business value for the release ($60,000) by the total number of sprints (6). Example: $60,000 by 6 equals $10,000 per sprint.
Step 3: Divide the total number of story points (50) by the sprint's business value ($10,000) to determine the business value per story point. Example: $10,000 / 50 equals $200 in business value per story point.
Step 4: Take each user story's story points and multiple them by the business value per story point. Example: One card has 10 story points. The user story's business value would be $2,000. For example, a single user story is estimated to have 10 story points. Multiply by the business value per story point ($200) by 10, which equals $2,000.
Example: A user story has 10 points. The business value per story point is $500. 10 x $500 = $5,000. The total business value of the card is $5,000. Once the card is deployed, the release would earn $5,000 in business value.
Draw Backs for These Methods
Calculations are done at a high level and are not detailed. It's an estimation of the business value assigned to each card.
Not all cards are created equal in delivering business value. Evenly spreading business value among all user stories might provide an incorrect impression of actual business value being deployed.
A higher velocity will create more business value, but it may not be possible for the team to achieve high velocity if a large number of research cards, tech cards, or spikes are needed in a release.
Unplanned work, adding tech cards, research cards, or spikes in a release can negatively impact the overall business value delivered. Completing these cards would not deploy business value because they don't have a business value assigned to them.
Adding user stories or removing user stories from a release with story points assigned to them would cause a variance between the business value planned versus achieved.
Cards not completed would not add to the total amount of business value the team planned for the release. Teams would be penalized for incomplete cards by the variance between planned business value deployed and actual business value deployed. You can only deliver business value if the card is deployed.