On cost of delay

In each company, there is a rush in having innovative ideas brought up and implemented. When it comes to implementing those ideas there are huge delays in the time to market and for this reason, rival companies already release similar products or features. As a consequence, a lot of great ideas are wasted and the enthusiasm to innovate and improve is heavily diminished.

But how are companies making sure that the valuable ideas are implemented quickly and their capacity to innovate is not wasted? The answer to this question is using proper prioritization techniques.

There are a couple of techniques available out there:

1)     Moscow -> Functionalities are split into four groups: Must have, Should have, Could have, Would have. Although it sounds pretty straightforward, using this technique most of the items and categorized with Must have, meaning they all have to be implemented. So, if this technique isn’t used properly it will not be very helpful

2)     Equity -> This technique is based on fairness. The development budget is allocated to departments, stakeholders and large projects. The assumption is that the proportions allocated will deliver the most long-term value for the organization as a whole. Yet this situation rarely happens.

3)     HiPPO -> Prioritization is driven by the Highest Paid Person’s Opinion. With this technique, the development teams consider that their work doesn’t make sense on many occasions, but since the management made promises about it needs to be completed.

4)     Cost of Delay Divided by Duration (CDD) -> This technique was developed by Black Swan Farming. It is a way of communicating the impact of time on the outcomes we hope to achieve. 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.

An explanatory video about Cost of Delay can be found here.

The creators of this technique implemented a new process for managing requirements. They created a backlog of features, initially at the project level, but later at the program and the portfolio levels named Dynamic Priority List. The features in the list were prioritized using the Cost of Delay method.

Cost of Delay is considered to be a framework for decentralizing economic decisions.

In high-performing organizations, leadership and management have a sharp focus on the value the organization is creating for its customers. Cost of Delay provides a way to measure the value of time, enabling teams to make transparent prioritization decisions. By quantifying the value of the work we are doing, we can avoid doing low-value work. If we limit work in process across the value stream and only work on the highest-value tasks, we can rapidly reduce time-to-market for work which is the highest value to our customers.

For a better understanding of this technique let’s consider the following example, having 2 features which need to be prioritized:

·        Feature A – Implementation time of 2 weeks, Cost of Delay is 25.000 euro per week

·        Feature B – Implementation time of 1 week, Cost of Delay is 10.000 euro per week

Possible scenarios:

Scenario 1. Implement Feature A first, means that Feature B will not be implemented for 2 weeks resulting in a Cost of Delay of 20.000 euro

Scenario 2. Implement Feature B first, means that Feature A will not be implemented for 1 week resulting in a Cost of Delay of 25.000 euro

Scenario 3. Implement Feature A and Feature B in parallel, means that Feature A will be delayed with 1 week and Feature B will be delayed with 1 week resulting in a Cost of Delay of 35.000 euro

In this example using the Cost of Delay technique the Scenario 1 is the preferred option.

By calculating Cost of Delay for each feature, we no longer rely only on a Product Owner to estimate the business value for the stories in the backlog, which is a limited way to prioritize since constant recalculations are needed in order to take into account the time sensitivity of business value.

Instead, given that we have limited capacity, we think of prioritization as choosing what to delay.

When development capacity becomes available, the team simply picks the item with the highest delay cost at that time. This is a key advantage of using Cost of Delay: following the Principle of Mission, it allows everybody in the organization to make rational, transparent economic decisions without the need for command-and-control mechanisms such as onerous reviews, approvals and prioritization by the most senior person in the room.

The Take-Away

Moving from a centralized decision-making system to a decentralized model is most of the times difficult, but the differences in the time to market will be tremendous.

Having difficulties prioritizing development work for your organization?

Try using Cost of Delay for once and see the benefits yourself.

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