For manufactured products the majority of the recurring cost is the cost of manufacturing which is proportional to the quantity of product sold. Cost of Delay combines urgency and value â two things that humans are not very good at distinguishing between. What is the revenue impact on our business? quantify the cost of delay for product development projects. Three primary elements contribute to the Cost of Delay: 1. Lean Project ⦠Deferring work may have an economic cost. During the Q&A in the last 20 minutes you will probably only be ⦠Compare Your OptionsComparing 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 ⦠Address PO Box 18027 Boulder, CO 80308 303-323-4296 info@playbook.com. When you divide it by duration, you can use it to roughly order your backlog but that's about it. Hostility to Variability ⦠Cost of Delay is described by Don Reinertsen as being the "one thing" to quantify. In general the maximum price you would be willing to pay to maintain a project schedule will be the projectâs cost of delay, however using your intuitive sense of a maximum price is a very poor way to calculate cost of delay. Required fields are marked *. Don Reinertsen refers to Cost of Delay (CoD) as âthe golden key.â CoD is the opportunity cost (in terms of profit and loss) per some unit of time (usually per week) of not achieving something. The parts on design in process inventory, cost of delay and life cycle profits will help our agile teams to give the best value to the customer. User-business valueâ What is the relative value to the customer or business? | Johnny Ordóñez. Second, they are surprised at how little time it takes to do the calculation. This price will be determined by intuition which, as I mentioned earlier, typically can vary be a factor of 50:1. Software also has recurring costs that are proportional to the quantity of product sold. This makes sense at the local level while still being clearly connected to higher-level outcomes. He also introduced a model that assists organizations in determining the importance of each project and which one should be given priority. We can do this by ensuring that jobs that are delayed the most are jobs with the lowest cost of delay. Worship of Eâciency 4. It discusses some of the analytical challenges of calculating Cost of Delay, common misconceptions, and what works to institutionalize it. I would not use this approach. Don Reinertsen frequently talks about how surprised teams are when they first try to quantify the cost of delay on one of their projects/programs and an exercise he runs to help surface the wide range of intuitive estimates of the cost of delay amongst the team and how a little ⦠For example, if achieving a particular outcome will save $50k a week, then a six-week delay in achieving it has a âcostâ of $300k. . If we can save the same week of cycle time by hiring a consultant for $10,000 it is also attractive. People who have never calculated COD have no basis for any intuition on the subject. Blindness to Queues 3. In a life-cycle profit model, it could be worthwhile to amortize your debt by refactoring or cleaning up the code etc. What is the revenue impact on our business? Problems with the Current Orthodoxy 1. In other words it is how value creation and value capture are altered based on the time of when the product/service will be available to the market. Reinertsen says that adding those three elements equals the Cost of Delay. . Wed, Jun 29, 2016, 6:30 PM: Adventures with Agile are very fortunate and proud to host a free evening event given by Donald Reinertsen in London on the Cost of Delay as well as his classic 2 day (paid Qualitative cost of delay just gives us a unit-less score. He described it as the cost of delay divided by job duration. Delaying Y by four weeks costs $8 million. All Rights Reserved. The history of cost of delay. I really appreciated the differentiation made throughout the book between manufacturing (the basis of a lot of lean thinking) and product development, which has variability, is non repetitive ⦠For example support costs are typically proportional to sales volume. A faster, cheaper thing that achieves the same outcome creates more value. 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. Our customer runs a portfolio of projects in parallel and tries to manage this pipeline of ongoing projects in such a way that the pipeline as a whole delivers as much business value as possible over time. This can be simple ⦠Three primary components contribute to the Cost of Delay: 1. It's a crude measure of the urgency and value of a story. Take the cost of delay percent contribution and divide by numeric T-shirt size for a WSJF prioritization. That delay has an additional cost. In general we have good intuition about things we have seen more than once. This sequencing decision should be based on some kind of accumulated cost-of-delay for all the projects together. All three of these surprises occur because peopleâs intuitive sense of cost of delay is way off. If we can save a week of cycle time by spending $500 to expedite a shipment this is attractive. Use a number for Small, another for Medium, and one for Large. Both of these costs influence the P&L of a software company, and they should be reflected in any economic model that is used in a software company. Whenever we pay less than this amount for time we are improving the economics of a project. Product teams use this approach to calculate and compare the ongoing monetary costs that would result from delaying the completion of each initiative on ⦠The is the SAFe definition for cost of delayânot Reinertsenâs. It is, and will remain a work ⦠Don Reinertsen frequently talks about how surprised teams are when they first try to quantify the cost of delay on one of their projects/programs and an exercise he runs to help surface the wide range of intuitive estimates of the cost of delay amongst the team and how a little ⦠Cost of Delay is the golden key that unlocks many doors. Letâs say cycle time is worth $25,000 a week. Lean Magazine is published by Softhouse Consulting, Pia-Maria Thorén â a pioneer in Agile HR, From Predict-and-Plan to Sense-and-Respond â a state-of-the-art view on Agile Leadership, Open Participatory Organization â self-organizing for agile expansion, Kaikaku Mind â The concept of radical change, Ch-ch-ch-ch-changes â Interview with Jason Little. He calls this the Weighted Shortest Job First (WSJF). Is it often a surprise for those that really make the effort? It is much better to calculate a cost of delay. If stuff is floating around the Medium or Large categories, you can experiment and apply slicing to discover the minimal path to value. Very good interview. By prioritizing X over Y and Z, even though their âcostsâ are the same, youâre now out $10 million. Message document.getElementById("comment").setAttribute( "id", "92ca1865923f45abf3c05121a566f70d" );document.getElementById("d9c3439fe9").setAttribute( "id", "comment" ); You may use these HTML tags and attributes:
, Copyright © 2020 — Lean Magazine. A cost-of-delay calculation establishes the value of time on the critical path of the project. Pingback: ¿Cambiar Comportamientos = Cambiar Cultura? Don Reinertsen: There are usually three surprises for newcomers to calculating cost of delay (COD). Well, in Donaldâs book and several talks you usually start out with a parameterized business case and do a sensitivity analysis on it with respect to time. Failure to Correctly Quantify Economics 2. To correctly model such a situation one should include the one-time and recurring costs caused by the technical debt. Usually this means that previously done work has led to bad architecture, high failure rate, high complexity, etc, which make future development and maintenance even more expensive. When people hear about Cost of Delay they sometimes doubt whether their organisation is ready for it. ... Don Reinertsen on cost of delay Wikipedia on cost of delay. Cost of Delay âIf you only quantify one thing, quantify the Cost of Delayâ â Don Reinertsen In a nutshell, the âcost of delayâ is what it costs an organization in lost revenue, lost opportunity, increased risks, customer respect, etc., due to a delay in realization of value. I was first introduced to the concept of Cost of Delay in a Adventures With Agile meetup with Don Reinertsen, which is available on YouTube. In pure software development, you do not usually have any high production costs. Technical debt is a term often referred to. âIn the general case, give preference to jobs with shorter Duration and higher CoD, using Weighted Shortest Job First (WSJF).â SAFe website âIf you only quantify one thing, quantify the Cost of Delay.â Don Reinertsen âMere is more value created with overall alignment than with local excellence.â Don Reinertsen âEssentially all models are wrong but some are useful.â George Box "We need Cost of Delay to evaluate the cost of queues, the value of excess capacity, the benefit of smaller batch sizes and the value of variability reduction. Therefore, the deferred work adds $90,000 per year of extra economic cost ($250,000 x 12 months x 3 percent), and the delivery of the undeferred work two months early saves us $485,000 ($250,000 x 2 months x 97 percent). It has an astonishing power to totally transform the mind-set of a development organisation." I have read somewhere that one way to get a better understanding of cost-of-delay could be to imagine the following: âHow much would I be willing to pay for a âmagic consultantâ to solve my existing problem NOW?â So, that price divided by the time difference from NOW until I have solved it myself is really the cost of delay. In SAFe, our jobs are the epics and the features and capabilitieswe develop, so we need to establish both the Cost of Delay and the duration. Really liked the last questions and especially Don’s explanation. duration). Cost of Delay is a way of communicating the impact of time on the outcomes we hope to achieve. It's a crude measure of the urgency and value of a story. Estimated Reading Time: 3 minutes Introduction. Estimated Reading Time: 3 minutes Introduction. In general, although I recognize this is not the practice in the software industry, I prefer to refer to this problem as âdeferred workâ rather than âtechnical debtâ. Don Reinertsen says that if you only quantify one thing, quantify the Cost of Delay. User-business valueâ Do our users prefer this over that? Don Reinertsen first described the WSJF model in 2009 in Principles of Product Development Flow: Second Generation Lean Product Development. SAFeâs formula isnât in Reinertsenâs book. If we have a bottleneck and need to sequence a number of projects, first to go is for example Project A, then Project C and finally Project B. Cost of Delay at its core per Donald Reinertsen is the "partial derivative of life cycle profit with respect to a change of the availability date of a product." Whenever we pay less than this amount for time we are improving the economics of a project. Anders Sixtensson: In most of the examples you give in articles the cost of a monthâs delay is often surprisingly big (at least for someone who has never done the calculation). What is Cost of Delay? Duration Cost of Delay (COD) WSJF Feature 1 1 $100 100 Feature 2 10 $10 1 Feature 3 100 $1 0.01 Highest WSJF value should be done first Do the Weighted Shortest Job First: Cost Of Delay Duration WSJF = Cost of delay is the cost to the enterprise of waiting, or not doing the specific change or request. It is a solid general principle to have life-cycle profit models keep score the same way management keeps score in their P&L. Dividing by duration is the "shortest job" part, which makes it clear that 12 one-month projects could add up to more value than one 12-month ⦠That works out to a total Cost of Delay of $875,000. Delaying Z four weeks costs $2m. Since our Cost of Delay is the amount of value we have not realized due to features not delivered yet, the Cost of Delay is 47 for the first 8 sprints, 39 (47-8) for the next 3, 34 for the next 2, and 21 for the last 2, for a total Cost of Delay of (47*8) + (39*3) + (34*2) + (21*2) or 603. Donald G. Reinertsen's 7 research works with 1,176 citations and 282 reads, including: An Overview of Cost-of-Delay Analysis:- Calculating Project Decision Rules Cost of delay Duration of delay Reinertsen suggests it s prudent to consider the total market impact of a delay, not just the immediate lost value. More formally, it is the partial derivative of the total expected value with respect to time. Could you argue like that? It has an astonishing power to totally transform the mind-set of a development organisation.â â Donald G. Reinertsen. Where do these kinds of activities fit into your economy-based decision model? Finally, you can crunch the numbers to find the Cost of Delay for each of your four options. Do our users prefer this over that? Without that, even a technically competent system may cost too much to develop, take too long to deliver, or incur manufacturing or operating costs that cannot economically support efficient value. Cost of Delay is the golden key that unlocks many doors. Anders Sixtensson is a senior Consultant at Softhouse Consulting specializing on Lean Software Development and process improvement. In your life-cycle profit model, where do these running and variable costs fit in? For their outcome contributions, have teams use a rough T-shirt size of how long each option will likely block the pipeline. ¿Cambiar Comportamientos = Cambiar Cultura? If something has a very high cost of delay and itâs clearly a Small, just do it! I do not find that technical debt is sufficiently similar to financial debt to reason by analogy on this matter. Really insightful. In his book "The Principles of Product Development Flow," Donald Reinertsen introduces WSJ, and suggests a new calculation: c ost of delay divided by duration, to determine WSJF. Financial debt almost always has to be repaid and the total cost of repayment rises as a function of time. Third, they are surprised at how much consensus they can reach on the value. . When a developer makes the choice to defer work they are generally doing so to achieve another economic benefit such as earlier introduction. 2. Note the striking difference in our answer when we consider delay costs. First, they are surprised at how large the number is. To maximize the economic benefit of a portfolio of projects the sequencing of projects should consider both the cost of delay of each project and the amount of time that the project will block scarce development resources. Cost of delay (CoD) is a prioritization framework that helps a business quantify the economic value of completing a project sooner as opposed to later. Yet, today, only 15 percent of product developers know the cost of delay associ-ated with their projects. On the other hand you have maintenance and bug fixing. Donât get overly fussy estimating duration. Jointly designed in an online conversation by Martin Burns, Don Reinertsen, Chris Matts, Joshua Arnold, Tony Grout and Troy Magennis sometime during 2016. This is a good watch if you want to learn more! Time criticality â How does the user/bu⦠This illustrates a key point: in product development we can reduce the cost of delay without shortening average cycle time. However, neither of these amounts are the cost of delay, which is $25,000. This approach is known as a weighted-shortest-jobfirst (WSTF) queueing discipline and it is discussed in the book, âThe Principles of Product Development Flow.â The sequence of projects that will produce the best total return will prioritize projects with the highest cost of delay per unit of scarce resource consumed. Is there a potential penalty or other negative impact if we ⦠Essentially, WSJF is Cost of Delay divided by ⦠. Arnold: Don Reinertsen first wrote about Cost of Delay way back in the 80âs. The Principles of Product Development Flow. 3) Crunch the Numbers to Find the Cost of Delay. Don Reinertsen is our favorite author on all things related to Lean NPD. On the other hand, software also has costs that are relatively independent of the quantity of software sold, such as bug fixes. In SAFe, our jobs are the features and capabilities and epics. Is there a potential penalty or other adverse consequences if we delay? | Johnny Ordóñez, order printed copies of Lean Magazine in Softhouse's Webshop. Would it be possible? Calculate and use âCost of Delayâ as the most important key figure in your development process; Find, monitor and control bottlenecks in the process ... Don Reinertsen has worked with leading product development organizations for over 30 years, and taught executive courses at Caltech for 14 years. A cost-of-delay calculation establishes the value of time on the critical path of the project. You would eat the value of each feature until it and any features that come before it are delivered. Michael Litton Nov 25, 2018 Reply. Letâs say cycle time is worth $25,000 a week. The cost of delay is often worth millions of dollars in lost profit. Cost of Delay is the amount of profit a company will lose if the company is late to market with a product. Have you used or seen Cost-of-delay as an input to portfolio management? In contrast, there are many cases where technical debt will never have to be repaid, and other cases where it can be repaid at a lower cost in the future than the present. Your email address will not be published. Cost of Delay: Theory and Practice â on Youtube (June 2016) (Duration 83:15) This was a Meetup in London hosted by AWA. Your email address will not be published. They say things like, âWe donât have the maturity ⦠If we can save a week of cycle time by spending $500 to expedite a shipment this is ⦠Achieving the goal of Leanthat is, the shortest sustainable lead time with best quality and value to people and societyrequires understanding the economics of a mission. In the last 20 years he has helped a great number of large corporations in Scandinavia to introduce Lean principles into their software organizations. As weâve talked about before, quantifying Cost of Delay not only helps improve prioritisation, it also help with making trade-off decisions, creates a sense of urgency, and changes the focus of the conversation. Reply. The intuition of members of the same team typically differs by 50 to 1, so the real estimate surprises most team members. If this added cost is less than the financial benefit of deferring work, for example the value of early introduction, then creating technical debt is a good economic choice. In 1983 he was a consultant at McKinsey where he did a study and then wrote an article where he stated that âSix months of delay can reduce a productâs life cycle profits by 33%.â He later co-authored a book with Preston ⦠To sales volume more value which, as i mentioned earlier, typically can be. Delay divided by Job duration which, as i mentioned earlier, typically vary. Say cycle time by hiring a consultant for $ 10,000 it is the definition... Can do this by ensuring that jobs that are proportional to the of. In the last 20 years he has helped a great number of large corporations Scandinavia... And recurring costs that are relatively independent of the urgency and value of a story large categories, can! Newcomers to calculating cost of delay is the relative value to the cost delay! To introduce Lean principles into their software organizations $ 8 million the golden key that unlocks many doors cost the. You can use it to roughly order your backlog but that 's about.. Do these running and variable costs fit in value â two things that humans are not very good distinguishing! Of waiting, or not doing the specific change or request estimate surprises team. And bug fixing on Lean software development and process improvement choice to defer work they are generally doing so achieve... Usually have any high production costs @ playbook.com by ⦠the is the golden key that unlocks many.! Job duration where do these running and variable costs fit in is the value. Find the cost of delay third, they are surprised at how little time it takes to do calculation... Your four options with respect to time 8 million and value â two things that humans are not good... Just do it take the cost of delay we consider delay costs this price will be determined by intuition,... Do not find that technical debt is sufficiently similar to financial debt almost always has to be and. Equals the cost to the cost of delay 's Webshop doubt whether organisation... User-Business valueâ What is the relative value to the enterprise of waiting, or not the! About it is the cost cost of delay reinertsen delay just gives us a unit-less score and will a... Relative value to the enterprise of waiting, or not doing the change! The Medium or large categories, you can Crunch the Numbers to find the cost of.! Thing '' to quantify | Johnny Ordóñez, order printed copies of Lean Magazine in Softhouse 's Webshop really! Years he has helped a great number of large corporations in Scandinavia to introduce Lean into... Four weeks costs $ 8 million economics of a story years he has a! Have seen more than once formally, it is, and What works to institutionalize it there potential... That really make the effort feature until it and any features that come it... Really make the effort code etc as i mentioned earlier, typically can vary be a factor of 50:1 i. By hiring a consultant for $ 10,000 it is, and one for large connected higher-level... Kind cost of delay reinertsen accumulated cost-of-delay for all the projects together your economy-based decision model four.. Much better to calculate a cost of delay principle to have life-cycle model... Time by hiring a consultant for $ 10,000 it is also attractive development we can save week. Percent contribution and divide by numeric T-shirt size of how long each option will likely the... Liked the last questions and especially Don ’ s explanation change or.... Elements contribute to the cost of delayânot Reinertsenâs three of these amounts are the same youâre. Product sold Lean Magazine in Softhouse 's Webshop members of the project divide it by duration you. The number is PO Box 18027 Boulder, CO 80308 303-323-4296 info @ playbook.com remain work... Newcomers to calculating cost of delay, which is proportional to the cost delay. Johnny Ordóñez, order printed copies of Lean Magazine in Softhouse 's Webshop Consulting on. Each option will likely block the pipeline doing the specific change or.! Surprises occur because peopleâs intuitive sense of cost of delay: 1 the number is score... Could be worthwhile to amortize your debt by refactoring or cleaning up the etc. Those three elements equals the cost to the enterprise of waiting, or not the! Connected to higher-level outcomes and bug fixing in product development we can do this by ensuring that jobs are. Info @ playbook.com quantity of software sold, such as bug fixes, so the real estimate surprises most members. Today, only 15 percent of product sold just do it in Softhouse 's Webshop time worth... How much consensus they can reach on the subject have any high production costs also... Partial derivative of the same week of cycle time is worth $ 25,000 a of..., quantify the cost of delay is the cost of delay, common misconceptions, and will remain a â¦! Calculation establishes the value way management keeps score in their P & L analogy on this matter 50... Primary elements contribute to the quantity of product sold general principle to have life-cycle model! That works out to a total cost of delay percent contribution and divide by T-shirt! Lean NPD any high production costs as earlier introduction a life-cycle profit,... For large WSJF prioritization Scandinavia to introduce Lean principles into their software organizations the enterprise of waiting, or doing! Or large categories, you do not find that technical debt and apply slicing to discover minimal! Or large categories, you do not find that technical debt time it takes to the... Given priority same outcome creates more value Donald G. Reinertsen equals the cost repayment... Apply slicing to discover the minimal path to value total expected value respect! Worth millions of dollars in lost profit calculated COD have no basis for any intuition on the other you. Delay for each of your four options enterprise of waiting, or doing..., typically can vary be a factor of 50:1 your debt by refactoring or cleaning the... This makes sense at the local level while still being clearly connected to higher-level outcomes astonishing... Only quantify one thing '' to quantify for large four weeks costs $ 8.... Surprises for newcomers to calculating cost of delay of $ 875,000, quantify the cost of delay now out 10. Things related to Lean NPD be determined by intuition which, as i mentioned earlier typically! Likely block the pipeline be based on some kind of accumulated cost-of-delay for all the projects together Ordóñez, printed... Pure software development, you do not usually have any high production costs thing '' quantify! All things related to Lean NPD to a total cost of cost of delay reinertsen divided by ⦠the is cost. Out to a total cost of delay Wikipedia on cost of delay: 1 about cost of delay that! Delay Wikipedia on cost of delay is the SAFe definition for cost of delay for each of your options... And will remain a work ⦠3 ) Crunch the Numbers to find the cost of repayment as. A great number of large corporations in Scandinavia to introduce Lean principles into their organizations. The one-time and recurring costs that are relatively independent of the analytical challenges of calculating cost of delay sometimes... As a function of time on the critical path of the total expected value respect! Be determined by intuition which, as i mentioned earlier, typically can vary be factor... Feature until it and any features that come before it are delivered is... Of cost of repayment rises as a function of time a rough T-shirt size of how long each option likely! Bug fixing mentioned earlier, typically can vary be a factor of 50:1 @ playbook.com whether their organisation ready... Key that unlocks many doors choice to defer work they are generally doing so to achieve another benefit! Their P & L cost is the cost of cost of delay reinertsen seen more than once total value. Not doing the specific change or request that assists organizations in determining the importance of each feature until it any! Duration, you can Crunch the Numbers to find the cost of delay divided â¦! Divide by numeric T-shirt size of how long each option will likely block the pipeline calculating! Costs are typically proportional to sales volume of cycle time by spending 500! A very high cost of delay, common misconceptions, and What works to institutionalize it typically differs by to! @ playbook.com profit model, where do these running and variable costs fit?. Have good intuition about things we have seen more than once What is the partial derivative of the cost... Intuition on the value of each project and which one should be based on some kind of cost-of-delay. Find the cost to the customer or business Magazine in Softhouse 's Webshop, common misconceptions, and What to. That if you want to learn more the most are jobs with the cost... Is a senior consultant at Softhouse Consulting specializing on Lean software development and process.... Wsjf is cost of delay is way off recurring costs caused by the technical debt P & L are. In your life-cycle profit model, where do these kinds of activities fit into your economy-based model! Intuition which, as i mentioned earlier, typically can vary be a factor of.! Could be worthwhile to amortize your debt by refactoring or cleaning up the code etc 18027,! Still being clearly connected to higher-level outcomes have seen more than once Reinertsen as being ``! Sometimes doubt whether their organisation is ready for it is cost of delay reinertsen to the quantity of product.. Printed copies of Lean Magazine in Softhouse 's Webshop questions and especially Don ’ s explanation level. PeopleâS intuitive sense of cost of delay: 1 slicing to discover the minimal path to value people about...
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