Cost of Delay

By | November 25, 2014

“Our highest priority is to satisfy the customer through early and continuous delivery of valuable software”

As we all know this is the first principle behind the Agile Manifesto.

But how do we understand the value of the things we are working on and delivering? And why would we want to deliver something at the earliest possible opportunity?

‘Cost of Delay’ can be one way of determining the value of the things that we are working on. However as well as helping us understand the value, it also helps us to understand how the value of something may diminish over time. It therefore shows us the value we are missing out on while we are waiting for that something to be delivered.

In its most basic terms, Cost of Delay is a way of demonstrating the impact of time on value.

In some organisations, a feature or product may go through a development life cycle that may include steps such as requirements analysis, proof of concept or prototype generation, user validation testing, architectural analysis, requirements refinement, development and testing, and various types of deployment procedures before finally making it live. Now each of these steps may be efficient in its own right, but the wait in between each step, along with any unforeseen delays means the end-to-end delivery of value may not be at its optimum and therefore less total value is delivered.

There are three basic inputs required to work out the cost of delay.

  • Value. What is the monetary value of the benefits per week
  • Urgency. An understanding of when the benefits will start to accrue or diminish
  • Information value. What is the cost of taking the wrong path? What would we be willing to pay in order to sufficiently reduce the risk of our decision.

Looking at the simple example below, if we assume that the feature in question will return £1m for each week that it is live and we assume that its value will not diminish over its life cycle, then if each activity in the delivery chain takes a week to do and complete, then in total there are 7 weeks of waiting or delay, meaning that the cost of delay for this feature is £7m.

Cost of Delay

As Don Reinersten puts it: “People are often surprised at how large the Cost of Delay number is”. [http://leanmagazine.net/lean/cost-of-delay-don-reinertsen/]

Armed with Cost of Delay information we can make better trade offs and decisions on prioritisation, and better decisions on the steps we choose to take in order to deliver, ensuring that we are more focused on delivering at the earliest possible opportunity so that the maximum amount of value is returned to us.

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