IC Product Lifecycle Management and Portfolio Optimization Critical Elements of an Enterprise Solution

White Paper

Developed by Numetrics Management Systems, Inc. 20863 Stevens Creek Blvd, Suite 510 Cupertino, CA 95014 Tel: (408) 351 5800 Fax: (408) 351 5850 Email: info@numetrics.com Web site: www.numetrics.com

INTRODUCTION Project cancellations are costing semiconductor companies approximately $2 to $4 billion a year in wasted R&D investment. For just a single large semiconductor company, the figure can run to hundreds of millions of dollars annually. The primary reason companies experience late-stage IC project cancellations is that executives are unable to predict with confidence the resources needed to finish their projects on time a consequence of under-estimating design complexity and overestimating development productivity. In addition, they have a fuzzy view of the anticipated financial returns, and they are unable to quantify the consequences of being late. As a result, management often launches projects that have no viable business case, and inadvertently ensure failure by understaffing them and causing them to miss their markets. To hedge against market uncertainty, management often spreads its limited resources across too many projects whose likelihood of success is highly uncertain. They initiate and continue many projects for far too long before they conclude that they do not meet the organizations financial and business criteria. Unfortunately, important go/kill project-funding decisions come far too late in the project lifecycle. This situation arises even in otherwise well-managed semiconductor companies. The reality is that the current state of the business process for IC product development significantly lags the needs of the development organization. Paradoxically, not only do companies undertake too many projects, they do not evaluate enough product opportunities before making their commitments. Development teams need automated methods to quickly iterate through project tradeoffs involving scheduling, staffing, product functionality, and marketing factors. They need quick decision-making by upper management in the context of the companys overall portfolio of investment opportunities, and they need follow-through by resource managers to provide the needed personnel once a project has been approved.

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Without an integrated business process governing product development, companies are doomed to repeat past mistakesthe most serious of which is funding projects that have no chance of meeting schedule. Their rosy view inevitably leads to stressed-out project teams, costly cancellations and financial disappointments. Fortunately, semiconductor companies are changing the way they run their businesses. Along with introducing new company-wide integrated business processes for managing product development, they are adopting innovative tools for supporting their new ways of working. Among them are tools from Numetrics Management Systems. Numetrics LCM Project Planner and LCM Portfolio & Pipeline Optimizer directly support three of the five vital product development processes emerging in the semiconductor business. With these tightly linked tools, project managers and executive management can implement an integrated business process for IC product development from project concept development through product introduction that leverages reliable industry data and a rigorous methodology.

THE FIVE BASIC PROCESSES FOR IC PRODUCT DEVELOPMENT Leading semiconductor organizations are moving to develop an overall management process for IC product development encompassing five basic business processes:

1. Product strategy 2. Project concept development 3. Portfolio and pipeline optimization 4. Resource management 5. Project execution

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Numetrics believes that adopting this overall management process is now essential to remain competitive in IC Development. As can be seen in Figure 1, these processes do not occur in a simple sequential manner.

Figure 1: The overall management process for IC product development comprises five basic processes, occurring at different management levels. To work properly, they should be integrated into a coherent whole. 1. Product strategy. Product strategy is an enterprise-level activity that typically occurs annually or semi-annually. It undertakes such tasks as defining the business scope, selecting key markets and customers, and creating a competitive analysis. It develops product strategies and road maps that are integrated with technology road maps, which include platform architectures and process technology. Out of this process come the seeds of new product concepts. 2. Project concept development. The first step in the project life cycle is to develop the project concept and create a business plan for the product opportunity. Typically, a three-person team comprising a development manager, a technical lead and a business manager develops the plan. The purpose of the plan is to secure funding

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from the portfolio and pipeline managers and obtain authorization to proceed with developing the product. The project concept is a comprehensive view of the product and its development as a miniature business. It spells out the business case, gives the product description, specifies the process technology and outlines the basic project execution plan including scheduling and resource information, with reliable estimates of cycle time and staffing requirements. The business case describes the market opportunity for the product and the financial goals. More specifically it provides the following: the market entry date; a projection of the cash flows associated with the project and the product lifecycle; the cost to develop, manufacture and deliver the product; the revenue that will be received and, therefore, the profit; the net present value (NPV) and all the other financial metrics used to evaluate the product opportunity. The scheduling information includes the dates for major project milestones. The resource information consists of the monthly manpower requirement and the peak staffing need. Resource requirements are usually expressed as generic headcount, but in many cases they are also broken down by project role or skills needed. Normally, specific people are not assigned at the project concept stage. It is important to develop the project concept quickly for three key reasons. First, if the time taken is short, more product opportunities can be evaluated, and the ones that are chosenthe best onescan be initiated promptly. Second, the time required to develop a full-blown project plan significantly affects time-to-market, development cost and resource availability. Third, rapid project concept development prevents premature and unnecessary investment in detailed analysis and planning. Project concept development should be a highly iterative process conducted using a top-down methodology. A comprehensive, high-level plan should be created

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quicklywithin two weeksto express the initial product concept and the project assumptions and goals, rather than spending months to develop a full-blown plan with bottom-up scheduling details. If the initial plan indicates an inferior business opportunity or an infeasible project plan, the team can quickly re-scope or discard the project and move on to the next opportunity. If the initial plan looks promising, the team can begin refining the product concept and the business case, increasing the accuracy and detail until they find an optimal balance of time, resources and financial payback. 3. Portfolio and pipeline optimization. The role of portfolio decision making is simply to define the basket of projects that a company will undertake. Pipelining is a more tactical activity that ensures that sufficient resources are available to conduct the planned development. Although portfolio and pipeline are distinct concepts and many companies think of them as separate processes, portfolio management and pipelining are so closely interrelated that Numetrics maintains that they must be treated as an integrated business process and optimized simultaneously. The reason is that a projects business case is dramatically affected by market entry date and, therefore, time-tomarket, which in turn is heavily influenced by its position in the execution pipeline. The sequence, or positioning, of projects in the execution pipeline directly depends on engineering headcount constraints and, therefore, must be managed with a clear understanding of the financial impact on the portfolio. Portfolio management, conducted at the enterprise level on a regular basisoften quarterlyevaluates both proposed projects and those already under way. It decides whether to accept or reject projects that have been proposed and whether to continue or cancel existing projects. The decision to accept or reject proposed projects depends on each products fit with the companys market and technology strategies and on the projects financial attractiveness as spelled out in the project concept. The decision to continue or cancel existing projects is made at each major point in the

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development phase. At each point, the project concept deliverables are updated with the projects actual data and reviewed by portfolio managers, in a process known as a gate review. Portfolio managers make their decisions based on the current financial fit of each project and whether it still aligns with the companys market and technology strategies. When a new project is launched or an existing one is allowed to continue, it must draw resources from the same pool of R&D personnel as the other projects in the portfolio. It is the task of pipeline management to make sure that project schedules do not conflict and that the peak resources allocated do not exceed the resources actually available. Resources can be balanced by shifting people from one project to another and by accelerating or delaying various projects in the pipeline. However, altering project schedules can dramatically affect the business case for each project. Because timeto-market is so important in the semiconductor industry, any change in resource allocation or scheduling that affects the end date will affect the business results and therefore the projects financial returns. The very reason a project was accepted into the portfolio can be invalidated by the financial impact of changing its position in the pipeline to meet resource constraints. Therefore, incorporating projects in the portfolio and scheduling their execution in the pipeline is a tightly coupled process. 4. Resource management. Resource management begins when the project has been positioned in the pipeline and its resources have been allocated. It converts the generic headcount allocation into specific personnel assignments; i.e. it assigns people to each new project and, if necessary, reassigns staff that has already been allocated to existing projects. It makes sure that personnel are not double-booked and that each project is provided with the skills it needs. In addition, it makes sure that there are sufficient buffers in the resource scheduling to allow for such personal situations as vacations and for unforeseen project changes. Resource management protects against staffing-related problems that can cause one project to slip and delay

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people from moving on to their next project, causing that project to slip, with the effect rippling through all the projects further down the pipeline. 5. Project execution. Project execution begins after the project has been accepted into the portfolio and its resources have been assigned. It develops the bottom-up plan, a detailed schedule specifying what tasks are to be done and when, and assigns specific people to the tasks in the initial phases. It also monitors the progress from milestone to milestone. At each milestone, the project concept phase deliverables must be updated and submitted to portfolio and pipeline managers and to resource managers for revalidation or revision of the staffing and schedule. If the project concept no longer meets the organizations acceptance criteriathe strategic and financial requirementsthe project is cancelled. In other words, as noted earlier, each milestone functions as a gate at which the decision is made whether to advance the project to the next stage or to cancel it. Additionally, project execution manages the changes and problems that inevitably occurtechnical, organizational, and the like. It also includes time tracking, which records the teams activities for diagnostic analysis, project costing and performance measurement. Finally, at the conclusion of each project, a formal project close process archives the project records, reviews the lessons learned and benchmarks the overall performance of the project.

THE NUMETRICS-LCM TOOLS The Numetrics-LCM tool suite provides two unique and powerful tools that answer the needs of these basic business processes all the way from project concept development, through project execution, to project close. The two tools, LCM Portfolio & Pipeline Optimizer and LCM Project Planner, are tightly coupled and integrate these

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processes into a coherent overall product development lifecycle management (LCM) process, as shown in Figure 2.

Figure 2: LCM Portfolio & Pipeline Optimizer and LCM Project Planner, two unique and powerful tools in Numetrics LCM tool suite, answer the needs of the basic business processes all the way from project concept development to project close. Because they are tightly coupled, they integrate these processes into a coherent overall product development lifecycle management (LCM) process.

Numetrics LCM Project Planner Numetrics LCM Project Planner is used for project concept development, as well as during project execution at gate reviews to update the assumptions contained in the conceptual plan. The tool comprises three modules: Business Case, Design Complexity and Project Plan Synthesis. The modules are powerful in their own right, but their integration into a single tool greatly amplifies their power. Using a top-down methodology, they enable managers to develop the project concept quickly and then successively refine it to add more detail and provide greater accuracy.

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The most distinctive capability of LCM Project Planner is its ability to accurately synthesize an IC development project plan. Developed specifically for the semiconductor industry, the tool is based on a patented method of quantifying chip design complexity and measuring team productivity (see the white paper Design Complexity and Productivity). The underlying mathematical models are calibrated with data from more than 1,000 IC projects from over three dozen global semiconductor and electronics suppliers. The software generates a staffing profile (people vs. time) after the team provides technical details describing the new chip and identifies productivity benchmarks in Numetrics IC Project Database, possibly their own. The tool automatically right-sizes the project as the team investigates alternative product features or technology and imposes constraints on scheduling and staffing. Using LCM Project Planner, a business or marketing manager can quickly develop the business case. Key facets of the product opportunity are explicitly modeled in the softwaremarket opportunity, development costs and unit manufacturing costs. Cash flows from revenues and expenses are aggregated and used to evaluate the overall financial attractiveness of the project. The tool offers several sophisticated models that help users quickly derive important project details. These include models for: Quarterly unit demand Quarterly unit market share based on market entry date Development cost estimation Die size estimation Die yield Cost of schedule slips (profit, in dollars, lost per month of delay)

The most innovative aspect of LCM Project Planner is its ability to link all facets of project concept development into an integrated analysis framework. The key linkages are: Reuse levels, technology and functional blocks which affect design complexity. Design complexity impacts project effort, peak staffing and cycle time.

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Cycle time determines market entry date and thus affects market share. Feature set influences die size and unit cost. (It also influences selling price, but this is not calculated by LCM Project Planner; the selling price is a user input.)

LCM Project Planner Deliverables

Marketing
Target markets and customers Market size and Share achieved in each segment Number of competitors and their entry dates Price levels Revenue stream Cost stream Profit, Contribution, ROI, NPV Process technology Fab capacity required (unit volume) Die size, yield targets

Product Description

Financial

Resources

Functional blocks included in block diagram IP blocks required Speed, power, I/Os Reuse levels Total project manpower Peak team size Monthly resource demand in FTEs Start/End dates ---> Cycle time, market entry dates Key milestone dates

Manufacturing Risk

Scheduling

Technical difficulty (design complexity) Market risk defined by hurdle rate Productivity Risk - Productivity required to hit target schedule - Comparison of required productivity to past performance

Figure 3: Numetrics LCM Project Planner produces a robust, extensive set of deliverables. LCM Portfolio & Pipeline Optimizer uses these data as the basis for portfolio-level decision making.

Numetrics LCM Portfolio & Pipeline Optimizer Portfolio management and optimization ensures that all approved and funded projects align with the organizations goals, such as providing an adequate financial return on investment, creating a competitive advantage in target markets and staying within the companys means, with respect to human and capital resources. Numetrics LCM Portfolio & Pipeline Optimizer is used for deciding whether to accept or reject products that have been proposed and whether to continue or kill existing projects. The key to efficacious portfolio optimization is accurate, complete and consistent project-level information. Portfolio decisions are no better than the inputs they are based on and can be made no swifter than the time required to gather the project
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information. Numetrics LCM Project Planner addresses these fundamental concerns in producing the Project Concept Assessment deliverables, listed in Figure 3. These data are the building blocks for portfolio-level decision making. Using LCM Portfolio & Pipeline Optimizer, a general manager defines the scope of his or her portfolio by identifying all the projects involved and all the resources available to execute them. When the portfolio is ready for review, project leaders update their project concept or publish their first version using LCM Project Planner. These provide the data used by LCM Portfolio & Pipeline Optimizer. The method LCM Portfolio & Pipeline Optimizer employs is refreshingly simple, yet the underlying optimization algorithms are very sophisticated. The method is: 1. Eliminate sub-par, non-strategic and low-priority projects. 2. Compile the resource demand by total full-time equivalent workers* and by required skill sets, based on the project plans (part of the project concept assessment deliverables). 3. Assess resource demand vs. available staffing; adjust hiring plans. 4. Optimize the execution sequence and staffing of projects in the pipeline to mitigate resource shortfalls in total or for scarce skills, while maximizing portfolio NPV or another financial metric. Optimization may require the elimination of additional projects. 5. Adjust the project plans using LCM Project Planner (cycle time, staffing, complexity trade-offs) based on the outcome of the portfolio optimization. 6. Finalize the project concept for each project and authorize future or continued execution The outputs of the portfolio and pipeline optimization process are very straightforward:
*

A full-time equivalent worker, or FTE, is a measure of staffing level and is equivalent to one person working full-time. One FTE can be one person spending all his or her time on a project or, alternatively, for example, two people spending half their time on a project. The maximum one person can represent is one FTE no matter how many hours per week he or she works. Numetrics LCM Enterprise Software 2006 Numetrics Management Systems, Inc. Page 11 of 13

A list of approved projects Revised project concept assessments for projects altered during portfolio/pipeline optimization (staffing, start date, completion date) Approval to assign named resources to the upcoming stages of each project using a resource management tool

The extraordinary power of LCM Portfolio & Pipeline Optimizer is its ability to automatically perform portfolio and pipeline optimization (step 4 above). People can use the tools manual controls to manipulate a portfolio with two or three projects in the pipelinei.e., to delay a particular project in order to reduce short-term resource demand while minimizing the loss in NPV associated with that project being late to market. However, as the portfolio grows, such optimization can only be achieved using the automated software provided in Numetrics LCM Portfolio & Pipeline Optimizer. User judgment is required to prune projects for strategic reasons, to decide on hiring or contracting additional resources, as well as to decide which projects must go ahead as planned regardless of the financial outcome. The software then finds the best way to execute the portfolio profitably. Like LCM Project Planner, LCM Portfolio & Pipeline Optimizer provides the same capability to do what-if planning, without affecting the original published project plans. This capability enables management to efficiently consider many portfolio opportunities, including the effects of acquiring or spinning off businesses. Furthermore, LCM Portfolio & Pipeline Optimizer incorporates schedules and resource demands from projects related to IC development-software, IP cores, system integration and reference design.

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SUMMARY To compete and succeed in todays environment, semiconductor companies are adopting integrated business processes, comprising five basic processes, for managing product development. Numetrics LCM Project Planner and LCM Portfolio & Pipeline Optimizer directly support three of these five vital product development processes. These tightly linked tools enable project managers and executive management to implement an integrated business process for IC product development from project concept development through product introduction that is based on reliable industry data and a rigorous methodology.

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