Stages of DDP
For the sake of this article, I will separate DDP into seven steps that match the seven parts of the attached DDP spreadsheet. This is slightly different from most presentations of discovery-driven planning, but the overall process is broadly similar.
- Specify required profitability. This step asks you to determine the baseline profits and operating margins you would require in order for the project to be acceptable, both in terms of operating income and operating margin. This step forces you to state your minimum requirements up front so that you can have an unbiased hurdle for the project to pass at each stage. In addition to stating our required profits, using the required ROI tells you how much you can spend on product development and marketing.
- Estimate revenues. In this step, you build a reasonable model of your project's revenue stream over the lifetime of the project using the best known data, whether based on data from previous projects, industry sources, research, or any combination thereof.
- Estimate costs. Here, we list all the activities that will be required to complete and maintain the product. As in step 2, we use our best unbiased estimates of the cost for each activity based on the best data we can find.
- Develop a reverse income statement. The "reverse income statement" compares the estimated costs and revenues against the required profitability hurdles to see if they measure up.
At step 4, we compare the expected costs and revenues of our project developed in steps 2 and 3 against the required profitability from step 1. If the project's costs or potential profits don't satisfy our hurdles, we stop here, and attempt to re-plan. There is no point proceeding to steps 6-7 if we can't find a way to adjust our plan to meet our profitability hurdles.
If the project does measure up, we move on to sensitivity analysis and checkpointing:
- Isolate key variables and assumptions. In this step, we list all of the assumptions from steps 2 and 3 in a single table, and we attempt to define reasonable upper and lower boundaries for each of these variables.
- Perform a sensitivity analysis on your assumptions. We now use the ranges determined in step 5 to run a simulation of our model in order to determine the sensitivity of our assumptions -- that is, which assumptions have the greatest effect on our costs or revenues. This step requires a predictive modeling tool such as Oracle Crystal Ball or a reasonable alternative.
- Develop a list of Checkpoints. In the final stage, we develop a list of Checkpoints at which we will test and refine our assumptions. We attempt to prioritize development so that each Checkpoint tests as many of the most sensitive assumptions as possible at the lowest possible cost. Each Checkpoint gives us an opportunity to test several of our assumptions, further restrict the range of our assumptions, and re-plan as necessary. As our project evolves, we should revisit our assumptions at each Checkpoint and re-plan if necessary. This provides a means to cancel or refactor our projects as early as possible, and to gradually increase the scope of our investment as the ranges of assumptions are reduced at each successive checkpoint.
Note that Checkpoints are not the same thing as production milestones. The Checkpoints should serve as our overall production goals and drive the definition and scheduling of our narrower production milestones. Checkpoints define your plan to learn.