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skills/kill-criteria-exit-ramps/resources/methodology.md

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+# Kill Criteria & Exit Ramps: Methodology
+
+Advanced techniques for setting kill criteria, avoiding behavioral biases, managing portfolios, and building organizational culture around disciplined stopping.
+
+---
+
+## 1. Sunk Cost Psychology and Behavioral Economics
+
+### Understanding Sunk Cost Fallacy
+
+**Definition**: Tendency to continue project based on past investment rather than future value
+
+**Cognitive mechanisms**:
+- **Loss aversion**: Losses feel 2× more painful than equivalent gains (Kahneman & Tversky)
+- **Escalation of commitment**: Justifying past decisions by doubling down
+- **Status quo bias**: Preference for current state over change
+- **Endowment effect**: Overvaluing what we already own/built
+
+**Common rationalizations**:
+- "We've invested $2M, can't quit now" (ignoring opportunity cost)
+- "Just need a little more time" (moving goalposts)
+- "Too close to finishing to stop" (completion bias)
+- "Team morale will suffer if we quit" (social pressure)
+
+### Behavioral Interventions
+
+**Pre-commitment devices**:
+1. **Signed kill criteria document** before launch (removes discretion)
+2. **Third-party decision maker** without sunk cost attachment
+3. **Time-locked gates** with automatic NO-GO if criteria not met
+4. **Financial caps** ("Will not invest more than $X total")
+
+**Framing techniques**:
+1. **Pre-mortem inversion**: "If starting today with $0, would we do this?"
+2. **Opportunity cost framing**: "What else could these resources achieve?"
+3. **Reverse trial**: "To CONTINUE, we need to prove X" (default = kill)
+4. **Outside view**: "What would we advise another company to do?"
+
+**Example**: Company spent $5M on enterprise sales, 3 customers in 2 years (need 50 for viability)
+- **Sunk cost framing**: "We've invested $5M, can't stop now"
+- **Opportunity cost framing**: "Next $5M could yield 200 SMB customers based on pilot data"
+- **Pre-mortem inversion**: "If starting today, would we choose enterprise over SMB?" → No
+- **Decision**: Kill enterprise sales, reallocate to SMB
+
+### Quantifying Opportunity Cost
+
+**Formula**: Opportunity Cost = Value of Best Alternative − Value of Current Project
+
+**Process**:
+1. Identify top 3 alternatives for resources (team, budget)
+2. Estimate expected value for each: EV = Σ (Probability × Payoff)
+3. Rank by EV / Resource Cost ratio
+4. If current project ranks below alternatives → Kill signal
+
+**Example**: SaaS with 3 options
+- **Current project** (mobile app): EV = $2M, Cost = 5 engineers × 6 months = 30 eng-months, Ratio = $67k/eng-month
+- **Alternative 1** (API platform): EV = $8M, Cost = 30 eng-months, Ratio = $267k/eng-month
+- **Alternative 2** (integrations): EV = $5M, Cost = 20 eng-months, Ratio = $250k/eng-month
+- **Decision**: Kill mobile app (lowest ratio), reallocate to API platform (highest ratio)
+
+---
+
+## 2. Portfolio Management Frameworks
+
+### Portfolio Ranking Methodologies
+
+**Method 1: Expected Value / Resource Cost**
+
+Formula: `Rank Score = (Revenue × Probability of Success) / (Engineer-Months × Avg Cost)`
+
+**Steps**:
+1. Estimate revenue potential for each project (pessimistic, baseline, optimistic)
+2. Assign probability of success (use reference class forecasting for calibration)
+3. Calculate expected value: EV = Σ (Probability × Revenue)
+4. Estimate resource cost (engineer-months, budget, opportunity cost)
+5. Rank by EV/Cost ratio
+6. Define kill threshold (e.g., bottom 30% of portfolio)
+
+**Method 2: Weighted Scoring Model**
+
+Formula: `Score = Σ (Weight_i × Rating_i)`
+
+**Dimensions** (weights sum to 100%):
+- Strategic fit (30%): Alignment with company vision
+- Revenue potential (25%): Market size × conversion × pricing
+- Probability of success (20%): Team capability, market readiness, technical risk
+- Resource efficiency (15%): ROI, payback period, opportunity cost
+- Competitive urgency (10%): Time-to-market importance
+
+**Ratings**: 1-5 scale for each dimension
+
+**Example**:
+- **Project A**: Strategic fit (4), Revenue (5), Probability (3), Efficiency (4), Urgency (5) → Score = 0.30×4 + 0.25×5 + 0.20×3 + 0.15×4 + 0.10×5 = 4.05
+- **Project B**: Strategic fit (3), Revenue (3), Probability (4), Efficiency (2), Urgency (2) → Score = 0.30×3 + 0.25×3 + 0.20×4 + 0.15×2 + 0.10×2 = 3.05
+- **Ranking**: A > B
+
+**Method 3: Real Options Analysis**
+
+Treat projects as options (right but not obligation to continue)
+
+**Value of option**:
+- **Upside**: High if market/tech uncertainty resolves favorably
+- **Downside**: Limited to incremental investment at each gate
+- **Flexibility value**: Ability to pivot, expand, or abandon based on new info
+
+**Decision rule**: Continue if `Option Value > Immediate Kill Value`
+
+**Example**: R&D project with 3 gates
+- Gate 1 ($50k): Learn if technology feasible (60% chance) → Continue if yes
+- Gate 2 ($200k): Learn if market demand exists (40% chance) → Continue if yes
+- Gate 3 ($1M): Full launch if both tech + market validated
+- **Option value**: Flexibility to kill early if tech/market fails (limits downside)
+- **Immediate kill value**: $0 but foregoes learning
+
+**Decision**: Continue through gates (option value > kill value)
+
+### Portfolio Rebalancing Cadence
+
+**Quarterly portfolio review**:
+1. Re-rank all projects using latest data
+2. Identify projects below threshold (bottom 20-30%)
+3. Evaluate kill vs. pivot for bottom performers
+4. Reallocate resources from killed projects to top performers
+5. Document decisions and communicate transparently
+
+**Trigger-based review** (between quarterly reviews):
+- Major market change (competitor launch, regulation, economic shift)
+- Significant underperformance vs. projections (>30% variance)
+- Resource constraints (hiring freeze, budget cut, key person departure)
+- Strategic pivot (new company direction)
+
+---
+
+## 3. Decision Rights Frameworks
+
+### RACI Matrix for Kill Decisions
+
+**Roles**:
+- **Responsible (R)**: Gathers data, monitors metrics, presents to decision-maker
+- **Accountable (A)**: Makes final kill decision (single person, not committee)
+- **Consulted (C)**: Provides input before decision (team, stakeholders)
+- **Informed (I)**: Notified after decision (broader org, customers)
+
+**Example**:
+- **Kill Criteria Met → Kill Decision**:
+  - Responsible: Product Manager (gathers data)
+  - Accountable: Product VP (makes decision)
+  - Consulted: Engineering Lead, Finance, CEO (input)
+  - Informed: Team, customers, company (notification)
+
+**Anti-pattern**: "Team decides" (everyone has sunk cost, leads to paralysis)
+
+### Escalation Paths
+
+**Standard path**:
+1. **Metrics tracked** → Alert if approaching kill threshold
+2. **Project owner evaluates** → Presents data + recommendation to decision authority
+3. **Decision authority decides** → GO, NO-GO, or PIVOT
+4. **Execute decision** → If kill, wind down within 1 month
+
+**Override path** (use sparingly):
+- **Override condition**: Decision authority wants to continue despite kill criteria met
+- **Override process**: Written justification, senior approval (e.g., CEO), new kill criteria with shorter timeline
+- **Override limit**: Max 1 override per project (prevents repeated goal-post moving)
+
+**Example**: Product VP wants to override kill criteria for feature with 8% adoption (threshold: 10%)
+- **Justification**: "Enterprise pilot starting next month, expect 15% adoption within 60 days"
+- **New criteria**: "If <12% adoption after 60 days, kill immediately (no further overrides)"
+- **CEO approval**: Required for override
+
+### Governance Mechanisms
+
+**Pre-launch approval**:
+- Kill criteria document signed by project owner, decision authority, executive sponsor
+- Changes to criteria require re-approval by all signatories
+
+**Monitoring dashboard**:
+- Real-time metrics vs. kill thresholds
+- Traffic light system: Green (>20% above threshold), Yellow (within 20%), Red (below threshold)
+- Automated alerts when entering Yellow or Red zones
+
+**Postmortem requirement**:
+- All killed projects require postmortem within 2 weeks
+- Focus: learning, not blame
+- Shared with broader org to normalize killing projects
+
+---
+
+## 4. Postmortem Processes and Learning Culture
+
+### Postmortem Structure
+
+**Timing**: Within 2 weeks of kill decision (while context fresh)
+
+**Participants**: Project team + key stakeholders (5-10 people)
+
+**Facilitator**: Neutral person (not project owner, avoids defensiveness)
+
+**Duration**: 60-90 minutes
+
+**Agenda**:
+1. **Project recap** (5 min): Goals, kill criteria, timeline, outcome
+2. **What went well?** (15 min): Successes, positive learnings
+3. **What went wrong?** (20 min): Root causes of failure (not blame)
+4. **What did we learn?** (20 min): Insights, surprises, assumptions invalidated
+5. **What would we do differently?** (15 min): Specific changes for future projects
+6. **Action items** (10 min): How to apply learnings (process changes, skill gaps, hiring needs)
+
+**Output**: Written doc (2-3 pages) shared with broader team
+
+### Blameless Postmortem Techniques
+
+**Goal**: Learn from failure without blame culture
+
+**Techniques**:
+1. **Focus on systems, not individuals**: "Why did our process allow this?" not "Who screwed up?"
+2. **Assume good intent**: Team made best decisions with info available at the time
+3. **Prime Directive**: "Everyone did the best job they could, given what they knew, their skills, the resources available, and the situation at hand"
+4. **"How might we" framing**: Forward-looking, solutions-focused
+
+**Red flags** (blame culture):
+- Finger-pointing ("PM should have known...")
+- Defensiveness ("It wasn't my fault...")
+- Punishment mindset ("Someone should be held accountable...")
+- Learning avoidance ("Let's just move on...")
+
+**Example**:
+- **Blame framing**: "Why didn't PM validate market demand before building?"
+- **Blameless framing**: "How might we improve our discovery process to validate demand earlier with less investment?"
+
+### Normalizing Killing Projects
+
+**Cultural shift**: Killing projects = good (disciplined capital allocation), not bad (failure)
+
+**Messaging**:
+- **Positive framing**: "We killed 3 projects this quarter, freeing resources for winners"
+- **Celebrate discipline**: Acknowledge teams for recognizing kill criteria and executing quickly
+- **Success metrics**: % of portfolio actively managed (killed or pivoted) each quarter (target: 20-30%)
+
+**Leadership behaviors**:
+- CEO/VPs publicly discuss projects they killed and why
+- Reward PMs who kill projects early (before major resource drain)
+- Promote "disciplined stopping" as core competency in performance reviews
+
+**Anti-patterns**:
+- Hiding killed projects (creates stigma)
+- Only discussing successes (survivorship bias)
+- Punishing teams for "failed" projects (discourages risk-taking)
+
+---
+
+## 5. Advanced Topics
+
+### Real Options Theory
+
+**Concept**: Treat uncertain projects as financial options
+
+**Option types**:
+1. **Option to defer**: Delay investment until uncertainty resolves
+2. **Option to expand**: Scale up if initial results positive
+3. **Option to contract**: Scale down if results negative
+4. **Option to abandon**: Kill if results very negative
+5. **Option to switch**: Pivot to alternative use
+
+**Valuation**: Black-Scholes model adapted for projects
+- **Underlying asset**: NPV of project
+- **Strike price**: Investment required
+- **Volatility**: Uncertainty in outcomes
+- **Time to expiration**: Decision window
+
+**Application**: Continue projects with high option value (high upside, limited downside, flexibility)
+
+### Stage-Gate Process Design
+
+**Optimal gate structure**:
+- **3-5 gates** for major initiatives
+- **Investment increases** by 3-5× at each gate (e.g., $10k → $50k → $200k → $1M)
+- **Success criteria tighten** at each gate (higher bar as investment grows)
+
+**Gate design**:
+- **Gate 0 (Concept)**: $0-10k, 1-2 weeks, validate problem exists
+- **Gate 1 (Discovery)**: $10-50k, 4-8 weeks, validate solution direction
+- **Gate 2 (MVP)**: $50-200k, 2-3 months, validate product-market fit
+- **Gate 3 (Scale)**: $200k-1M, 6-12 months, validate unit economics
+- **Gate 4 (Growth)**: $1M+, ongoing, optimize and scale
+
+**Kill rates by gate** (typical):
+- Gate 0 → 1: Kill 50% (cheap to kill, many bad ideas)
+- Gate 1 → 2: Kill 30% (learning reveals issues)
+- Gate 2 → 3: Kill 20% (product-market fit hard)
+- Gate 3 → 4: Kill 10% (unit economics don't work)
+
+### Bayesian Updating for Kill Criteria
+
+**Process**: Update kill probability as new data arrives
+
+**Steps**:
+1. **Prior probability** of kill: P(Kill) = initial estimate (e.g., 40% based on historical kill rate)
+2. **Likelihood** of data given kill: P(Data | Kill) = how likely is this data if project should be killed?
+3. **Likelihood** of data given success: P(Data | Success) = how likely is this data if project will succeed?
+4. **Posterior probability** using Bayes theorem: P(Kill | Data) = P(Data | Kill) × P(Kill) / P(Data)
+
+**Example**: SaaS feature with 10% adoption target (kill if <10% after 6 months)
+- **Month 3 data**: 7% adoption
+- **Prior**: P(Kill) = 40% (4 in 10 similar features killed historically)
+- **Likelihood**: P(7% at month 3 | Kill) = 70% (projects that get killed typically have ~7% at halfway point)
+- **Likelihood**: P(7% at month 3 | Success) = 30% (successful projects typically have ~12% at halfway point)
+- **Posterior**: P(Kill | 7% adoption) = (0.70 × 0.40) / [(0.70 × 0.40) + (0.30 × 0.60)] = 0.28 / 0.46 = 61%
+- **Interpretation**: 61% chance this project should be killed (up from 40% prior)
+- **Action**: Evaluate closely, prepare pivot/kill plan
+
+### Stopping Rules in Scientific Research
+
+**Clinical trial stopping rules** (adapted for product development):
+
+1. **Futility stopping**: Stop early if interim data shows unlikely to reach success criteria
+   - **Rule**: If <10% chance of reaching target at current trajectory → Stop
+   - **Application**: Monitor weekly, project trajectory, stop if trajectory misses by >30%
+
+2. **Efficacy stopping**: Stop early if interim data shows clear success (reallocate resources)
+   - **Rule**: If >95% confident success criteria will be met → Graduate early
+   - **Application**: Feature with 25% adoption at month 3 (target: 15% at month 6) → Graduate to core product
+
+3. **Safety stopping**: Stop if harmful unintended consequences detected
+   - **Rule**: If churn increases >20% or NPS drops >10 points → Stop immediately
+   - **Application**: New feature causing user confusion, support ticket spike → Kill
+
+**Example**: Mobile app experiment
+- **Target**: 20% weekly active users at month 6
+- **Month 2 data**: 5% weekly active
+- **Trajectory**: Projecting 10% at month 6 (50% below target)
+- **Futility analysis**: 95% confidence interval for month 6: 8-12% (entirely below 20% target)
+- **Decision**: Invoke futility stopping, kill experiment at month 2 (save 4 months)
+
+---
+
+## Key Principles Summary
+
+1. **Set kill criteria before launch** (remove emotion, politics, sunk cost bias)
+2. **Make criteria objective** (numbers, dates, not feelings)
+3. **Assign clear decision rights** (single decision-maker, not committee)
+4. **Don't move goalposts** (criteria are fixed; changes require formal process)
+5. **Sunk costs are irrelevant** (only future value matters)
+6. **Kill quickly** (wind down within 1 month, avoid zombie projects)
+7. **Opportunity cost > sunk cost** (kill even if "almost done" if better options exist)
+8. **Normalize killing** (celebrate discipline, share learnings, remove stigma)
+9. **Portfolio thinking** (rank all projects, kill bottom 20-30% regularly)
+10. **Learn from kills** (blameless postmortems, apply insights to future projects)
+
+---
+
+## Common Mistakes and Solutions
+
+| Mistake | Symptom | Solution |
+|---------|---------|----------|
+| **Setting criteria after launch** | Goalposts move when results disappoint | Document criteria in PRD before launch, get sign-off |
+| **Subjective criteria** | Debate over "low engagement" | Quantify: "<10% weekly active", not "poor adoption" |
+| **Team consensus for kill** | Paralysis, no one wants to kill | Single decision-maker with clear authority |
+| **Sunk cost justification** | "Invested $2M, can't quit" | Pre-mortem inversion: "Would we start this today?" |
+| **Zombie projects** | Lingering for 6+ months | Wind down within 1 month of kill decision |
+| **Stigma around killing** | Teams hide struggles, delay kill | Celebrate kills, share postmortems, normalize stopping |
+| **Portfolio inertia** | Same projects year over year | Quarterly ranking + kill bottom 20-30% |
+| **No postmortem** | Repeat same mistakes | Require postmortem within 2 weeks, share learnings |