One of the components to consider when trying to understand Cost of Delay is the value of Information Discovery. This can take two basic forms, both of which have value to us: knowing which paths will likely lead to success, and; knowing which paths will likely lead to failure.
What would it be worth to simply have better knowledge – not to have the product or feature – just the information?
This matters, because product development is actually a journey of discovery. Unlike “complicated” environments, we cannot simply analyse and predict the result, we can only know a successful path in hindsight. Whilst we are not completely blind, whether the paths we might follow lead to success or failure are often not knowable in advance – they are typically the result of a non-deterministic process.
Making it even more difficult, there are often lots of different paths we could take; many, many degrees of freedom.
There are a lot of unknowns just on the technology side, about whether we are building it right. For instance: will this architecture scale? Will it be able to handle the expected number of concurrent users? But the most critical unknown, for most product development situations is this: are we even building the right thing? will this product or feature be used?
Knowing the answers to these questions reduce the economic risk in the decisions we make. Therefore, assuming we want to make rational economic choices, we should be willing to pay something to obtain this information. As a result, we can at least estimate what the information is worth to us — especially to get it earlier than our competitors.
To help understand how this works, consider the use of information discovery value in the Pharmaceutical industry. The process for discovering new molecules that have a therapeutic effect is very long, very expensive and highly likely to end in failure. For every 5,000 experimental compounds that are tested, only one is likely to gain formal approval from the regulator. Only two out of every 10 medicines that are developed will ever recoup the money spent of their development. Just like product development, drug development is a world of asymmetric payoffs and black swan farming.
Pharmaceutical companies handle this by purchasing information about the early signs of success of potential new drugs from smaller companies (who do the early stage of development). These drugs have an improved chance of making it through clinical trials and translating into a drug that could be the cure for some disease. In this case, rather than incur the time and expense of obtaining this information first hand, they are prepared to pay for the information that the smaller company has generated.
Information Discovery Value is the price we would be willing to pay to know something that we don’t already know. Whether something works or not. Whether something has value or not. It is the value of avoiding a potentially long trip down the wrong path.