Cost of Delay

"Cost of Delay is the golden key
that unlocks many doors.
It has an astonishing power to

transform the mind-set
of a development organisation.”
– Donald G. Reinertsen

What is Cost of Delay?

Cost of Delay is a way of communicating the impact of time on the outcomes we hope to achieve. More formally, it is the partial derivative of the total expected value with respect to time.

Cost of Delay combines urgency and value – two things that humans are not very good at distinguishing between. To make decisions, we need to understand not just how valuable something is, but how urgent it is.

Why is it the “One Thing” to Quantify?

The value that we miss out on when we deliver slowly or “late” can be enormous. It is often far more valuable to get something even a week earlier than it is to make it slightly cheaper to develop. These trade-offs are not obvious though – unless we understand the Cost of Delay.

Improve Prioritisation

Use Cost of Delay to surface assumptions & focus on what's valuable and urgent. CD3 (Cost of Delay Divided by Duration) helps you get more of what you want, faster.

Improve Prioritisation

If you want to move on from prioritisation by gut-feel, MoSCoW hell or HiPPO-driven decisions, you need to understand
Cost of Delay.

More...

Better Tradeoff Decisions

Product Development is full of tradeoffs. Use Cost of Delay to better inform these decisions and get distributed decision-making at all levels in your organisation.

Better Tradeoff Decisions

What are our queues costing us? What is the value of doing more frequent releases? What should our WIP limits be? Does it make sense to increase our capacity?

More...

Change the Conversation

If the system has little information available about value and urgency, it will optimise for other things – typically cost and dates, which drive the wrong behaviours

Change the Conversation

Read the Case Study of applying Cost of Delay across the portfolio at Maersk Line – and the way conversations started to be oriented around value and urgency.

More...

How do I get started with Cost of Delay?

Interested, but not sure how to get started? We can help with that. We’ve done this for lots of different organisations: from Fortune 500 giants like Maersk Line to smaller startups — as well as public and private sector organisations.

To get you started, we deliver online training and support in Cost of Delay to help you learn the ropes and start applying Cost of Delay in your organisation.

A Case Study – Maersk Line

The value of quantifying Cost of Delay becomes clear when you see it in action. For example, below is a value stream map for a feature that was delivered by a team at Maersk Line:

38 weeks of waiting seems crazy, doesn’t it? The things is, if you were to track the time spent adding value versus the time spent waiting in your organisation you will probably find something similar. In most organisations the end-to-end cycletime is dominated by waiting time.

The incredible cost of queues

In the example above, the Cost of Delay for this feature was actually more than $200,000 per week!  So, the 38 weeks that this opportunity spent waiting in various queues cost the organisation nearly $8m in lost revenue.

Knowing this puts the cost of waiting into perspective, doesn’t it? If they had taken the 5 minutes needed to estimate the Cost of Delay for this feature then a number of key decisions would have been made quite differently.

It’s one thing for an organisation to be blind to queues. It’s another level of blindness to have no clue what those queues are costing. If we’re going to make better decisions, we really need to understand the Cost of Delay of the things flowing through the system.

Optimising for speed

Like most organisations, Maersk was focused more on the efficiency of the parts of the process, than the speed of the end-to-end delivery of value.

For instance, it is normal to find approval and funding processes that are optimized for the efficiency of those doing the approving, seriously impacting the speed and efficiency of the whole system. Maersk Line, of course, was the same.

Part of what drives these poor system-design decisions is that we have a really bad understanding of how much the delays are actually costing us. Cost of Delay gives us a language and understanding of the cost of all these queues. Without information about value and urgency the system will optimise for other things, with suboptimal results.

Results

Implementing Cost of Delay alongside other changes at Maersk Line lead to significant improvements in value delivered, end-to-end speed and the quality of what teams were delivering.

Cycletime from Prioritised to Live reduced by half for two core systems.Defects reduced by 88%, Delays reduced by 80% and Patches reduced by 85%Cost  per hour down 9% and Throughput up 22%

These results are evidence that understanding Cost of Delay has (in the words of Don Reinertsen) “an astonishing power to totally transform the mind-set of a development organisation”. The Mastering Cost of Delay course looks in more detail at how we we went about implementing Cost of Delay at Maersk and other organisations.

Mastering Cost of Delay

Do you want to improve how you prioritise, make better tradeoff decisions and change the conversation where you work?


Got a question?
Need some help?

Drop us a note…