An introduction to Cost of Delay
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The document discusses the concept of 'cost of delay' and its significance in prioritizing projects to improve decision-making and ROI. It provides examples of calculating financial value, managing resources effectively, and optimizing workflows based on the priority order derived from cost of delay. The author emphasizes using this metric to foster constructive discussions about project prioritization and to navigate the complexities of project management.
An introduction to Cost of Delay
- 1. Why your current prioritisation is Apples v Pears An introduction to Cost of Delay Glenn Smith
- 2. 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.
- 3. 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?
- 4. Demand will ALWAYS outstrip supply
- 5. Starting projects can be hard
- 6. What does this all mean?
- 7. Cost of Delay can help us improve
- 8. “If you only quantify one thing, quantify the cost of delay” Don Reinertsen
- 9. It allows us to consider Cost of Delay Financial Value Information Value Urgency / Time Criticality
- 10. So what do we really mean by cost of delay?
- 11. £ Benefits per month Time Delay Cost Delayed entry not impacted peak Late Entry Reproduced from Black Swan Farming
- 12. £ Benefits per month Time Delay Cost Short benefits horizon, peak impacted by delay Late Entry Reduced Peak Reproduced from Black Swan Farming
- 13. £ Benefits per month Time Delay Cost Long benefits horizon, peak impacted by delay Late Entry Reduced Peak Reproduced from Black Swan Farming
- 14. How do you calculate the Value? Protecting revenue Avoiding Costs Increases to revenue Reduce Costs Reproduced from Black Swan Farming
- 16. What about information value?
- 18. 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?
- 19. £ Benefits per month Time Delay Cost Delayed entry not impacted peak Late Entry Reproduced from Black Swan Farming
- 20. 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?
- 21. 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
- 22. 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.
- 23. 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.
- 24. “To influence financial decisions, speak the language of money” Don Reinertsen
- 25. How does Cost of Delay help with scheduling?
- 26. 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
- 27. 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
- 28. 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
- 29. 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
- 30. Health Warning • Duration is End to End. • Duration is dependant on team capability and capacity; different team, different calculation.
- 31. Other uses of Cost of Delay Drive optimisation of workflow Manage queues Drives smaller batches Values excess capacity
- 32. “what matters is not the $ figures. What matters is that you have the conversations about what is valuable.” Joshua Arnold
- 33. Questions?
- 34. 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
- 35. Keep in touch… • Twitter: @gupster • Email: glenn@tootech.co.uk • Blog: www.tootech.co.uk • LinkedIn: https://uk.linkedin.com/in/glennpsmith
Editor's Notes
- #2: So this session is HEAVILY inspired by Don Reinersten and Joshua Arnold.
- #4: ASK: (then follow up on it) Does anyone use HiPPO (Highest Paid Persons Opinion)? Do you use First In First Out Do people just just everything? Any particular issues? Feedback 2 key points << is this sensible with large groups?
- #5: Agile manifesto even talks about it in the 12 principles: Simplicity--the art of maximizing the amount of work not done--is essential. But I regularly hear execs saying they want everything and they can not choose. So we’re still not doing a good job.
- #6: Particulary in large organisations. Getting it on ‘the list’, getting money, finding people available to work on it etc. Don Reinesten calls this the fuzzy front end How do you know this project/feature is more important or as we prefer to say valuable than another. Project X means we do some technical improvements, Project Y keeps the MD out of the papers, and project A might increase profit. The Fuzzy Front End (FFE) is the messy "getting started" period of new product engineering development processes. It is in the front end where the organization formulates a concept of the product to be developed and decides whether or not to invest resources in the further development of an idea. It is the phase between first consideration of an opportunity and when it is judged ready to enter the structured development process (Kim and Wilemon, 2007;[21] Koen et al., 2001).[3] It includes all activities from the search for new opportunities through the formation of a germ of an idea to the development of a precise concept. The Fuzzy Front End phase ends when an organization approves and begins formal development of the concept.
- #7: Cumbersome process, guarantees that don’t exist and often poor ROI. Poor ROI from the cost of the processes or poor ROI as you’ve delayed opportunities Unable to effectively compare and therefore prioritise projects or features
- #8: A way of comparing apples to apples An economic framework Not IT specific Quick to do Surfaces assumtions Drive future works
- #9: Don is the Cost of Delay god.
- #11: The best way to demonstrate is to show some delay curves visually
- #12: Long life benefit, not impacted by the delayed to entry.
- #13: Any examples you could think of? Christmas, valentines, garden design in spring
- #14: Long term horizon, where by having a delay in entry means the peak is never as high. Any ideas what this might be? Maybe second to market.
- #15: By putting a £$ value on each feature or project you can easily compare apples to apples. You may put a value that an alternative is. You might use 5 Whys to dig in.
- #16: The next question is usually this. Well there are no such thing. They might be difficult to put a value on it, but you will be able to. If you can explain what might happen if it did or didn’t happen then you can measure it. Say keeping the Chief Exec of the front page of the papers. What might a front page add cost? What about brand damage?
- #17: What would you pay to learn something? Logically no more than what it’s worth, so a little less as a max, but then you can consider the benefit of having it early.
- #18: Lets not argue that this team costs £25,100 per sprint and that team is £24,500. £25,000 is more than accuracy enough.
- #19: 5*30,000=£150,0000 pa or £12,500 per month. You are incurring these costs now today, so every month that goes by where you do not deliver the project you are incurring the £12,500 cost per month What type of delay graph is this?
- #20: Long life benefit, not impacted by the delayed to entry.
- #21: Vendor A, CoD is £200,000. Total cost £200k + £50k = £250k Vendor B, CoD is £100,000. Total cost £100K + £100K = £200k
- #22: Be able to show your workings and list your assumptions
- #23: Two cost of delays here, acme secure and acme phantom!
- #24: Create the number using a cross functional group of people. While the number is important, the discussion that’s had generating it is super valuable too
- #27: Graphs as per Don’s book (our numbers)
- #29: This means you’re not just comparing apples to apples, but you can start telling if it’s a granny smith or a braeburn. It also promotes smaller items to be done first, so can encourage a culture of breaking large items down so they can be delivered, which means the bits that don’t add value drop to the bottom.
- #31: When you have teams all with similar skillsets things become easy, pull off the top of the list. When you have a Java team and a iOS team, things get harder.
- #32: As Don says, ‘COD is the golden key that unlocks many doors’ Can do CoD for mid-way milestones too.
- #36: If you wake up tomorrow or next week with questions