“If you only quantify one thing, quantify the cost of delay” – Don Reinertsen
The cost of delay is what a delay in the realization of value costs an organization in terms of lost revenue, lost opportunity, increased risks, customer respect, and so on.
Intuitively, we know that delays in delivery have a cost to the organization; but what is that cost and how do we measure it? Just because something is late does not mean it does not have value; however, the degree to which that delay reduces value may not be clear. First, you need to know where you are going.
First, You Need Some Targets
In order to assess the cost of a delay of something, you first need to have a way to measure its value. This will vary based on the product or project. Perhaps customer retention is the goal. Or it might be market expansion. In any case, you need to start with some definition of the economic impact that the product or project is supposed to achieve.
Be as precise as possible. Ambiguity leads to confusion and inertia. Ambiguity also makes it hard to assess whether adjustments need to be made. If the goal is “Generate more business”, then almost anything is sufficient.
Ambiguity makes it difficult to decompose the product or service into smaller pieces, each with their own value and each having line of sight back to the larger vision. This helps you develop plans for smaller, separate releases of value which helps you start to get value faster.
Shorter, more frequent releases are critical to success.
- Earlier realization of value. If you can realize value earlier, so much the better. For example, a new mobile application might attract the attention of early adopters, even if it lacks all the planned capabilities at the time of its first release.
- Decisions about whether to continue. In the best case, smaller, more frequent releases arrive more quickly at the point of sufficiency. Perhaps, after re-consideration, the new mobile application does not need all of the planned features, at which point you may want to cancel or postpone further work. In the worst case, if the project or product looks as though it cannot achieve its target, then you can pull the plug that much earlier.
- Adjustment. Innovation is a learning process. Releasing frequently creates more real-world feedback loops, arming developers with the data needed to challenge their hypotheses and compel important adjustments.
But having shorter, more frequent releases requires that we know the expected value of each of these smaller releases. For example, the goal for the first release of the mobile app might be, “Reduce customer support calls by 5%,” which is a small piece of the overall goal for the app which might be “Reduce customer support calls by 50%.” If the initial release fails to meet the 5% goal, or exceeds it substantially, you have a firmer basis for making adjustments than if no clear goal existed for that release.
Now, You Can Assess Cost of Delay
This short article will not discuss the precise calculations for cost of delay. It is enough to say for now that the cost of delay is something that you can calculate. If you expect the number of customer support calls to diminish by 5% after the first release of the mobile app, you can assess the cost to the organization, day by day, of not releasing the app when planned. This cost of delay presents people in the value stream with a clear economic imperative that should be guiding their actions, instead of a less compelling commitment to a project management outcome.
Knowing the cost of delay of the shorter releases lets you assess alternatives for value realization across products or projects. While some may realize value very early, others may need more time to produce substantial value. You can adapt your develop strategies accordingly. For example, one team might work very hard to meet the first two releases, while another team is focused more about later releases.
Cost of delay is an important metric because it focuses attention on the right question: when and how are we realizing value from our efforts? It can lead to a smarter release strategy, using many shorter releases instead of one expensive (and risky) big release.