So, how does a product manager do this prioritization to ensure return on investment? There is a simple formula that we can use to determine the order.
Return on Investment = Business Value/Effort
This sounds like a simple enough formula, but how do you put this in to practice? Here is a method that has been shared with me that I’ve found valuable. Once you have your user stories (or requirements, if in another format) written, place them in a list. Then, determine a relative weight for both the business value and the effort that it would take to complete (story points is a great fit here). Finally, perform the calculations to determine the ROI rating, and then prioritize based on that number. I use a relative number for estimated business value generated. In the example below, I am using a scale of 1-10 to rate anticipated business value and story points for the effort estimation. As you may recall, it’s the product owner’s responsibility to stop the project when a great enough return on investment is not being met by the level of effort required. In the example below, the threshold set was 1.5, so you’ll notice we will not be pursuing User Story D at this time. User Story D will remain on the product backlog as business value for the story could increase or effort could decrease, which could affect the priority of the story. User Story Business Value Effort ROI Rating Will we do it? User Story A 10 2 5 Yes User Story B 6 2 3 Yes User Story C 8 5 1.6 Yes User Story D 5 5 1 No There are many ways to prioritize the product backlog, but this method ensures that you will generate the most return on investment in the shortest time possible. Consider using this tool next time you are working to prioritize your project work.