Quantifying the Cost of Delay requires an understanding of two things: value and urgency. We generally find that it helps to visualise the impact of time before considering what the value might be.
Most cases of Cost of Delay can be easily approximated using the following graph as a guide. It shows the impact of being late for a feature where the benefits are long-lived and the peak benefits are unaffected by delay. There are other urgency profiles, but this is the most common in large organisations. It is also the easiest to quickly estimate Cost of Delay for.
For this Urgency Profile, Cost of Delay is shown on the y-axis. The area between the two curves is the Delay Cost incurred. Cost of Delay is a rate (per week or per month usually) and can change over time. Delay Cost incurred is the cumulative sum. (Be careful to observe the units on the vertical axis!)
In most cases, the ramp-up to the peak benefits per week is the same whether we have it earlier, or later. By visualising the impact of delay we can more easily see that it is the peak benefits that we are delaying. (In other urgency profiles, the peak is also affected by delay, the Cost of Delay can be even higher, especially if the impairment is permanent and the benefits are long-lived.)
How do I get started with Cost of Delay?
Here’s a simple template you can use to quickly capture your assumptions and share your calculations with others.
Follow these four steps to quantify the Cost of Delay:
- Have a look here for some scaffolding to help you think about value. (Note: It’s not just about financial benefits either).
- If you want to understand more about how value decays over time, take a look at some common urgency profiles.
- Now have a go at estimating the peak benefits, this might help. (Be brave).
- Combine the estimated peak benefits and your understanding of the urgency to produce an estimate of the Cost of Delay, usually in $/week or $/month.
If you’re really struggling with estimating the peak benefits you may want to talk to someone in your Finance department. Given that we are usually investing real money in the things we are developing, there is usually some sort of quantification of expected benefits. If you’re still struggling, you could try this qualitative approach to help you at least get familiar with the key parameters.
If you want to learn about using Cost of Delay for prioritisation, read here and here for an introduction to CD3 to see how it works. PLEASE, don’t get stuck there though: Cost of Delay is not just about improved scheduling – it’s also a vital ingredient in making better trade-off decisions and for changing the focus on the conversation. If you don’t quantify it, you don’t get those benefits. And it’s not like these decisions won’t get made anyway, they will – they will just be based on hidden assumptions (gut-feel) rather than shared ones.
If this all sounds a bit theoretical to you, let’s be clear: this is not just theory. We’ve actually done this in lots of organisations: public and private sector, in large, medium and small organisations. We even wrote about using Cost of Delay across a $100m portfolio at a Fortune 500 company. If you need buy-in from others to get started with Cost of Delay, you’ll find some interesting before and after results that might help to make the case. In our experience, using Cost of Delay really helps to discover, nuture and speed up the delivery of value.
If you want some help to introduce these concepts and help you get going with Cost of Delay we run tailored workshops designed for people leading product development (like Product Owners and senior execs) as well as teams. The feedback on this is pretty good.