Experiences from Prioritisation with Cost of Delay

Cost-of-Delay (CoD) is an important tool for prioritising work. But it is no silver bullet and just like any other tool it can be misused. This is a brief discussion how I’ve found CoD works in practice.

All too frequently, traditional measures such as Return-on-Investment (ROI) or Net-Present-Value (NPV) don’t take into account delay effects. They wrongly assume that timing has no bearing on value, leading to poor prioritisation decisions that destroy value and render calculations irrelevant.

Delays can involve huge hidden costs if they are not tracked

I won’t discuss the details of how Cost-of-Delay works, you can find more information here, here and here.

In brief, it is a mechanism for estimating the ongoing cost (in £/wk or $/wk) of delaying prioritising a particular piece of work. This cost might be an opportunity cost (lost potential revenue), an ongoing cost already being incurred or a risk-based cost (losing existing revenue or incurring legal costs or fines).

My experiences with Cost-of-Delay

I’ve learned that:

It’s a very useful way to concentrate minds and create focus, because people respond much more to a $ figure than some abstract priority number.

It’s a mixture of art and science. That is, some numbers are easy to estimate and measure (cost-side), otherwise much harder (revenue-side) and may lag years behind the decision, making learning hard or at least ambiguous.

Having simple numerical models of value that feed into calculations of CoD is a really good way to get people to connect the work that they do with the value to the overall business. It can also liberate product/service managers and help them make a much stronger case.

It falls down when it gets too complicated. Complex models quickly depart from any basis in accuracy, drive argument and disagreements. Attempting to work out dependency chain costs quickly becomes unwieldily and leads to pointless theoretical arguments.

It doesn’t replace judgement, it just informs it better. There’s still usually a need to make a manual prioritisation decision because the numbers are rough estimates at best.

The most important thing about prioritisation is to have some – and by that I mean an ordered list, not a bucket of MUSTs. Beyond that considerations of Value and CoD are useful. Ultimately the business still needs to be able to make the calls.

On the Public Sector side – it’s sometimes treated as if there’s no revenue side to the equation, focusing only on costs. 

That’s a misrepresentation of reality – public bodies are funded and compete for funding with others.

They may not be profit-making, but they still need to consider how the success of their products and services will lead to continued and increased future funding (as do charities). Sometimes the ultimate goal is less funding – if their mission is to no longer be needed because the social ill they are there for has been eradicated.

Good luck using CoD in your prioritisation challenges, I’d love to hear your experiences.

Posted in Cost of Delay, Value, Value Prioritisation.

One Comment

  1. Pingback: In defence of the Scaled Agile Framework (SAFe) | Drive growth, deliver better quality services faster and reduce costs

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