An introduction to Cost of Delay

Why your current prioritisation is Apples v Pears An introduction to Cost of Delay Glenn Smith

About me •  Techie at heart, started

out writing embedded code for Motorola.

•  An consultant helping people create better products and services using agile and lean principles.

•  Get a kick when people ‘get it’ and their product and service improves.

How do you prioritise now? In groups of 3-4 chat how it currently works for you. 10min.

•  Is there a process •  What works •  What issues do you have?

Demand will ALWAYS outstrip supply

Starting projects can be hard

What does this all mean?

Cost of Delay can help us improve

“If you only quantify one thing, quantify the cost of delay”

Don Reinertsen

It allows us to consider

Cost of Delay

Financial Value

Information Value

Urgency / Time Criticality

So what do we really mean by cost of delay?

£ Benefits per month

Time

Delay Cost

Delayed entry not impacted peak

Late Entry

Reproduced from Black Swan Farming


Time

Delay Cost

Short benefits horizon, peak impacted by delay

Late Entry

Reduced Peak



Time

Delay Cost

Long benefits horizon, peak impacted by delay

Late Entry

Reduced Peak


How do you calculate the Value?

Protecting revenue

Avoiding Costs

Increases to revenue

Reduce Costs


What about intangibles?

What about information value?

Accuracy over precision

Cost Savings Example •  You have a call centre with 100 staff. The run rate of

each person is on average £30,000pa. •  Project Optimise will streamline some of the services

allowing for a reduction in calls, allowing for a reduction in 5 less staff in the call centre.

•  What is the Cost of Delay of not delivering Project Optimise?


Time

Delay Cost

Delayed entry not impacted peak

Late Entry


Increase Profit Example •  You need a CRM to allow an increase of sales of

£100,000 a month. •  Vendor A costs £50,000 and has a eight week

integration period. •  Vendor B costs £100,000 and has a four week

integration period. •  Assuming they both have the same functionality,

which vendor would you choose and why?

Lets try a more real world example Have your smartphones at the ready to do any research you think might help you to make assumptions

Local Alarms Ltd •  You are a small building security alarm installers and

maintainers covering the local area. •  Your accreditation of Acme Secure products runs out soon.

Acme are encouraging you to also certify for Acme Phantom!

•  Phantom! is a larger system for larger properties, thus making it possible to charge more for install/service per hour and by it’s nature takes longer also, so margin and average invoices would be higher.

•  If you do not renew your certification, Acme will stop sending leads to you and stop you validating warranties.

•  You feel you can accommodate this additional work for Phantom! within the existing workforce.

Why use Cost of Delay? •  Results in better Return on Investment through better

decision making. •  Allows for an adult conversation about the benefits. •  Surfaces assumptions, as each value in your

calculation will have an assumption. •  Allows for risks in assumptions to be tested before

you start work. •  Allows you to guide a conversation about

prioritisation, not drive it.

“To influence financial decisions, speak

the language of money” Don Reinertsen

How does Cost of Delay help with scheduling?

First In First Out Schedule Project CoD Duration A £1 10 B £5 2 C £10 8

Cost of Delay

Time

A

B

C

£170

Highest Cost of Delay Schedule Project CoD Duration A £1 10 B £5 2 C £10 8

Cost of Delay

Time

A

B

C

£50

Cost of Delay / Duration •  It’s a form of Weighted Shortest Job First, with the

weight being Cost of Delay

Cost of Delay

Duration

= Priority Order

Cost of Delay/Duration Schedule Project CoD Duration CoD/Dur A £1 10 0.1 B £5 2 2.5 C £10 8 1.25

Cost of Delay

Time

A

B

C

£30

Health Warning •  Duration is End to End. •  Duration is dependant on team capability and capacity;

different team, different calculation.

Other uses of Cost of Delay

Drive optimisation of workflow

Manage queues

Drives smaller batches

Values excess capacity

“what matters is not the $ figures. What matters is that you have the conversations

about what is valuable.” Joshua Arnold

Questions?

Further Reading •  The Principles of Product Development Flow, Don

Reinertsen http://amzn.to/1N9aki3

•  How to Measure Anything: Finding the Value of Intangibles in Business by Douglas W. Hubbard http://amzn.to/1LaJcK

•  Black Swan Farming Blog http://blackswanfarming.com/cost-of-delay/

•  SAFe and Cost of Delay http://www.scaledagileframework.com/wsjf/

•  Tootech Blog http://www.tootech.co.uk

Keep in touch… •  Twitter: @gupster •  Email: [email protected] •  Blog: www.tootech.co.uk •  LinkedIn: https://uk.linkedin.com/in/glennpsmith