Cost of Delay

What is Cost of Delay and Why Does it Matter?

First, it’s important to understand why Cost of Delay is so important to project delivery.

And here it is: As smart and efficient as modern technology helps us become, the fact remains that we simply can’t do everything at once. Further, when it comes to fulfilling complicated feature requests, especially when you factor in safety, regulations and overall quality, getting those features shipped takes time.

So when you have several feature requests on your plate and you can only take on so much at once, how do you prioritize what comes first?

You could prioritize based on what your customers want, what your internal stakeholders want, what you think the impact will be based on value, and the list goes on… but what about cost? At the end of the day, you’re in business to make money, and that makes Cost of Delay the most important measure to your bottom line.

To be clear, Cost of Delay helps you understand and quantify the impact of time on outcomes. In other words, it offers a simple way to calculate how much the time it takes to develop a new feature, including any time spent waiting in a backlog, will end up costing your business. And it calculates this by considering both value and urgency.

Ultimately, Cost of Delay helps improve and simplify decision-making. It helps improve decision-making by prioritizing monetary value, which is critical to every business, and weighing delivery options based on that all-important metric.

Meanwhile, it helps simplify decision-making by providing black and white answers about the monetary impact of various options for prioritization. Different stakeholders can argue until they’re blue in the face when it comes to prioritizing based on any number of factors, but it’s hard to argue against the cold hard fact of money earned (or saved).

How to Quantify Cost of Delay

Prioritizing project delivery based on Cost of Delay might sound well and good, but it also sounds like something that could take an entire blackboard full of advanced calculus to determine. Fortunately, it’s quite the opposite, as Cost of Delay is actually very simple to quantify. In fact, it only takes three steps (and, we promise, no calculus).

1) Mark Down Your Requests

For the purposes of this example, let’s say you have four requests awaiting attention. The first step to quantify Cost of Delay and determine the best order in which to tackle those requests is to write them down side by side, including the expected duration of delivery and value.

From there, you can calculate what’s known as the “CD3,” or the Cost of Delay Divided by Duration. To do so, simply divide the value by the duration and divide the answer by 1,000.

2) Outline Your Options

Next, outline all of the options you have when it comes to the order in which to tackle your feature request backlog. Typically, the options are as follows:

• No priority: Do everything at once and complete them all at the same time
• Duration priority:Tackle the backlog based on delivery duration, starting with the shortest duration
• Value priority: Tackle the backlog based on value, starting with the highest value feature
• CD3 priority: Tackle the backlog based on CD3, starting with the highest CD3

3) Crunch the Numbers to Find the Cost of Delay

Finally, you can crunch the numbers to find the Cost of Delay for each of your four options.

No Priority Option: If you work on all of the features at once, it will be 23 weeks until you see any value. Therefore, you eat the value of each feature for the full 23 weeks. That means you lose the entire $18,000 each week for 23 weeks, for a total of $414,000 Cost of Delay.

Duration Priority Option: If you prioritize based on duration, you would work as follows:

You would delay realizing the value of each feature until it and any features that come before it are delivered. That works out to a total Cost of Delay of $286,500, calculated as follows:

Value Priority Option: If you prioritize based on value, you would work as follows:

You would delay realizing the value of each feature until it and any features that come before it are delivered. That works out to a total Cost of Delay of $259,500, calculated as follows:

CD3 Priority Option:If you prioritize based on CD3, you would work as follows:

You would delay realizing the value of each feature until it and any features that come before it are delivered. That works out to a total Cost of Delay of $254,000, calculated as follows:

Compare Your Options: Comparing your options side by side, you have an easy choice when it comes to Cost of Delay, with the CD3 prioritization option costing the least amount of money.

The Impact of a Delay and Associated Costs

While Cost of Delay measures value and urgency, it is only one of many ways to understand the full impact of a delay in feature delivery. The truth is, there are several other impacts beyond Cost of Delay, each of which comes with costs of its own. For example, delays might impact:

• Competitive advantage (i.e. if a competitor beats you to market), which can result in a loss of market share and the advantage of being first
• Your customers’ businesses in cases where parts or features are mission-critical to their business and they depend on them to make money, which can result in a loss of trust and/or customers themselves
• Your own business’ plans in cases where the delay has a domino effect on other projects, which can result in a loss of trust with internal stakeholders
• Projected return on investment, as impacts in the above areas can affect the overall return that your business sees on its investment

How to Avoid Incurring Costs from Delays

So how do you avoid incurring these costs? Of course, the obvious answer is to prioritize your backlog based on Cost of Delay, but there’s more to it than that.

You can also take strides to get to market faster for all of your requirements by ensuring you take a smart approach to project management. For example, embracing an Agile development methodology can help you shorten release cycles to bring new features to market faster, which factors into the overall Cost of Delay. On top of that, embracing Lean principles for project management can help reduce waste and improve overall planning so that you can deliver as expected and avoid any unforeseen delays that incur more costs than planned.