[#AgileStories]:: Cost of Delay

• August 17, 2018
• Vadim Davidov

Cost of Delay is the golden key that unlocks many doors.

Donald G. Reinertsen

When you ask customers, or the business, which features are the highest priority; they often say “all of them.” Don’t just ask what is the most valuable. Ask the question, “what will cost us the most, by delaying its delivery?” Different stakeholders can argue until they’re blue in the face when it comes to prioritizing based on any number of factors, but it’s hard to argue against the cold hard fact of money earned.

Cost of Delay (CoD) is one of useful tools to prioritize Projects, Features, Epics…to produce maximum economic benefit. If you want to save or make the most money, you need to prioritize your backlog … with money.

In other words, it offers a simple way to calculate how much the time it takes to develop a new feature, including any time spent waiting in a backlog, will end up costing your business.

Cost of Delay is described by Don Reinertsen as being the "one thing" to quantify.

Cost of Delay can be placed in various contexts like:

• Product development – the amount of money you will lose if you delay the launch of your new product.
• Software development – the amount of money you will lose if you delay the release of a groundbreaking feature that will give you an advantage over the competition.
• IT Operations – the amount of money you will lose if you fail to deliver the strategic initiative that the CEO wants.

CALCULATE COST OF DELAY

Here is how to do the exact calculation:

• Calculate the expected features weekly profit/value.
• Calculate, approximately, how much time it would take to implement it.
• Divide the profit/value by the estimated project duration.

The higher the CoD value is, the more important it is, since the return on the investment will be faster.

For example, we need to implement three (3) features, let’s put the features in a table and compare them:

Let’s visualize different scenarios, showing when we could get a return on our investment, given a choice of priority::

1. Do all at the same time.
2. Complete the features that take the shortest amount of time first.
3. Do the features that are the most valuable first.
4. Do the features that have the highest CoD (value divided by duration) score.

Regardless of our choice of priority, all of the features are done by the 14th week. Features are not making us money, they are costing us money for every week.

DO ALL AT THE SAME TIME

We start all of the features at the same time, we get $19,000 of value on our 14th week. We have the Cost of Delay of all features = $3 000 + $7 000 + $9 000 per week. Delay Cost incurred is $247 000.

COMPLETE THE FEATURES THAT TAKE THE SHORTEST AMOUNT OF TIME FIRST

Prioritization based on shortest to longest length of time to accomplish a feature would take us until 4th week to get our initial return on investment- $3 000. Not until the 8th week we can get our next return on investment - $7 000, and not until our 14th week would we get our final return on investment $9,000.
For the three weeks we are working on Feature A, we get the Cost of Delay of all three features:
$3 000 + $7 000 + $9 000 a week. This adds up to $19,000 per week times 3 weeks giving us a total Delay Cost incurred so far of $57,000.
We move on to developing Feature B. For the 4 weeks this takes us to deliver we incur the Cost of Delay of Features B and C: $7000 + $9000 per week = $16,000 per week. So the Delay Cost is an additional $64,000, bringing us to a total of $121,000 worth of Delay Cost incurred so far. At last, we can start working on Feature C. Cost of Delay of Feature C is incurred during its development of $9000 per week for the 6 weeks it takes to build Feature C. This is another $54,000 of Delay Cost to add to our previous of $121,000 for a total of $175,000 Delay Cost incurred.

DO THE FEATURES THAT ARE THE MOST VALUABLE FIRST

Prioritizing based on most to least valuable feature, it would take us until our 7th week to get our return on investment- $9,000 until the 11th week until we get our next return on investment- $7 000, and not until our 14th week would we get our final return on investment- $3 000. For the 6 weeks we are working on Feature C we incur the Cost of Delay of all three features = $3000 + $7000 + $9000 a week. This adds up to $19 000 per week multiplied by 6 weeks giving us a total Delay Cost incurred so far of $114,000.
We then move on to developing Feature B. For the 4 week this takes us to deliver we incur the Cost of Delay of Features B and A: $7000 + $3000 per week = $10,000 per week multiplied by 4 weeks giving us a total Delay Cost is an additional $40,000, bringing us to a total of $154,000 worth of Delay Cost incurred so far. We can start implementing Feature A incurring the Cost of Delay during its development of $3 000 per week for the 3 weeks it takes to complete Feature A. This is another $9 000 of Delay Cost to add to our previous of $154 000 for a total of 163 000 Delay Cost incurred.

DO THE FEATURES THAT HAVE THE HIGHEST CoD

Implementing the features based on whichever has the highest CoD score, we would do Feature B first; followed by Feature C, and finally Feature A. For the 4 weeks we are developing Feature B we incur Cost of Delay of $3 000 + $7 000 + $9 000 per week. Delay Cost = $76 000. For the 6 weeks we are developing Feature C we incur Cost of Delay of $9 000 + $3 000 per week. Delay Cost = $72 000. For the 3 weeks we are developing Feature A we incur Cost of Delay of $3000 per week. Delay Cost = $9,000. Total Delay Cost is $157,000.

SUMMARY

Don’t try to maximize value delivered. Please limit the cost of delay!

CONCLUSION

You have to use CoD every time you are in doubt about how to prioritize features/projects. It is simple but not easy to make a decision :)

Be Agile!