A cost-of-delay calculation establishes the value of time on the critical path of the project. That works out to a total Cost of Delay of $875,000. Yet, today, only 15 percent of product developers know the cost of delay associ-ated with their projects. “In the general case, give preference to jobs with shorter Duration and higher CoD, using Weighted Shortest Job First (WSJF).” SAFe website “If you only quantify one thing, quantify the Cost of Delay.” Don Reinertsen “Mere is more value created with overall alignment than with local excellence.” Don Reinertsen “Essentially all models are wrong but some are useful.” George Box Don Reinertsen refers to Cost of Delay (CoD) as “the golden key.” CoD is the opportunity cost (in terms of profit and loss) per some unit of time (usually per week) of not achieving something. In general we have good intuition about things we have seen more than once. Blindness to Queues 3. For example, if achieving a particular outcome will save $50k a week, then a six-week delay in achieving it has a “cost” of $300k. 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. Cost of Delay is the golden key that unlocks many doors. Cost of Delay combines urgency and value – two things that humans are not very good at distinguishing between. In general, although I recognize this is not the practice in the software industry, I prefer to refer to this problem as “deferred work” rather than “technical debt”. 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 … Three primary components contribute to the Cost of Delay: 1. 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. For manufactured products the majority of the recurring cost is the cost of manufacturing which is proportional to the quantity of product sold. I have read somewhere that one way to get a better understanding of cost-of-delay could be to imagine the following: “How much would I be willing to pay for a ‘magic consultant’ to solve my existing problem NOW?” So, that price divided by the time difference from NOW until I have solved it myself is really the cost of delay. He also introduced a model that assists organizations in determining the importance of each project and which one should be given priority. In the last 20 years he has helped a great number of large corporations in Scandinavia to introduce Lean principles into their software organizations. Hostility to Variability … It is much better to calculate a cost of delay. Cost of Delay is the golden key that unlocks many doors. For example support costs are typically proportional to sales volume. When a developer makes the choice to defer work they are generally doing so to achieve another economic benefit such as earlier introduction. 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. 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 Essentially, WSJF is Cost of Delay divided by … 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. I would not use this approach. In your life-cycle profit model, where do these running and variable costs fit in? Anders Sixtensson: In most of the examples you give in articles the cost of a month’s delay is often surprisingly big (at least for someone who has never done the calculation). Cost of Delay “If you only quantify one thing, quantify the Cost of Delay” – Don Reinertsen In a nutshell, the “cost of delay” is what it costs an organization in lost revenue, lost opportunity, increased risks, customer respect, etc., due to a delay in realization of value. Jointly designed in an online conversation by Martin Burns, Don Reinertsen, Chris Matts, Joshua Arnold, Tony Grout and Troy Magennis sometime during 2016. This makes sense at the local level while still being clearly connected to higher-level outcomes. Cost of Delay is the amount of profit a company will lose if the company is late to market with a product. Qualitative cost of delay just gives us a unit-less score. If something has a very high cost of delay and it’s clearly a Small, just do it! This approach is known as a weighted-shortest-jobfirst (WSTF) queueing discipline and it is discussed in the book, “The Principles of Product Development Flow.” 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. During the Q&A in the last 20 minutes you will probably only be … In general the maximum price you would be willing to pay to maintain a project schedule will be the project’s cost of delay, however using your intuitive sense of a maximum price is a very poor way to calculate cost of delay. People who have never calculated COD have no basis for any intuition on the subject. Failure to Correctly Quantify Economics 2. However, neither of these amounts are the cost of delay, which is $25,000. 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). In 1983 he was a consultant at McKinsey where he did a study and then wrote an article where he stated that “Six months of delay can reduce a product’s life cycle profits by 33%.” He later co-authored a book with Preston … Don Reinertsen: There are usually three surprises for newcomers to calculating cost of delay (COD). The cost of delay is often worth millions of dollars in lost profit. As we’ve 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. Cost of delay is the cost to the enterprise of waiting, or not doing the specific change or request. 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. It's a crude measure of the urgency and value of a story. Technical debt is a term often referred to. Cost of Delay is described by Don Reinertsen as being the "one thing" to quantify. Estimated Reading Time: 3 minutes Introduction. "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. duration). Let’s say cycle time is worth $25,000 a week. 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 User-business value– Do our users prefer this over that? What is the revenue impact on our business? . Reply. 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. First, they are surprised at how large the number is. Problems with the Current Orthodoxy 1. Very good interview. What is the revenue impact on our business? The history of cost of delay. That delay has an additional cost. In pure software development, you do not usually have any high production costs. Reinertsen says that adding those three elements equals the Cost of Delay. 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. Delaying Z four weeks costs $2m. They say things like, “We don’t have the maturity … 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." Don’t get overly fussy estimating duration. Really insightful. It's a crude measure of the urgency and value of a story. ... Don Reinertsen on cost of delay Wikipedia on 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 … This is a good watch if you want to learn more! Note the striking difference in our answer when we consider delay costs. | Johnny Ordóñez, order printed copies of Lean Magazine in Softhouse's Webshop. Well, in Donald’s book and several talks you usually start out with a parameterized business case and do a sensitivity analysis on it with respect to time. 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. . Whenever we pay less than this amount for time we are improving the economics of a project. Michael Litton Nov 25, 2018 Reply. quantify the cost of delay for product development projects. User-business value– What is the relative value to the customer or business? Software also has recurring costs that are proportional to the quantity of product sold. For their outcome contributions, have teams use a rough T-shirt size of how long each option will likely block the pipeline. It discusses some of the analytical challenges of calculating Cost of Delay, common misconceptions, and what works to institutionalize it. Required fields are marked *. 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. . Take the cost of delay percent contribution and divide by numeric T-shirt size for a WSJF prioritization. Is there a potential penalty or other adverse consequences if we delay? Finally, you can crunch the numbers to find the Cost of Delay for each of your four options. 3) Crunch the Numbers to Find the Cost of Delay. A cost-of-delay calculation establishes the value of time on the critical path of the project. A faster, cheaper thing that achieves the same outcome creates more value. If we can save a week of cycle time by spending $500 to expedite a shipment this is … The is the SAFe definition for cost of delay—not Reinertsen’s. More formally, it is the partial derivative of the total expected value with respect to time. By prioritizing X over Y and Z, even though their “costs” are the same, you’re now out $10 million. 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, Copyright © 2020 — Lean Magazine. ¿Cambiar Comportamientos = Cambiar Cultura? 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. Where do these kinds of activities fit into your economy-based decision model? Lean Magazine is published by Softhouse Consulting, Pia-Maria Thorén – a pioneer in Agile HR, From Predict-and-Plan to Sense-and-Respond — a state-of-the-art view on Agile Leadership, Open Participatory Organization – self-organizing for agile expansion, Kaikaku Mind – The concept of radical change, Ch-ch-ch-ch-changes – Interview with Jason Little. Delaying Y by four weeks costs $8 million. Your email address will not be published. If stuff is floating around the Medium or Large categories, you can experiment and apply slicing to discover the minimal path to value. Cost of Delay: Theory and Practice – on Youtube (June 2016) (Duration 83:15) This was a Meetup in London hosted by AWA. Your email address will not be published. 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. If we can save a week of cycle time by spending $500 to expedite a shipment this is attractive. Third, they are surprised at how much consensus they can reach on the value. He described it as the cost of delay divided by job duration. 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 = SAFe’s formula isn’t in Reinertsen’s book. Lean Project … Calculate and use “Cost of Delay” 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. Three primary elements contribute to the Cost of Delay: 1. This illustrates a key point: in product development we can reduce the cost of delay without shortening average cycle time. Time criticality – How does the user/bu… It is a solid general principle to have life-cycle profit models keep score the same way management keeps score in their P&L. Worship of E“ciency 4. Could you argue like that? Let’s say cycle time is worth $25,000 a week. Financial debt almost always has to be repaid and the total cost of repayment rises as a function of time. 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. All three of these surprises occur because people’s intuitive sense of cost of delay is way off. It has an astonishing power to totally transform the mind-set of a development organisation." It has an astonishing power to totally transform the mind-set of a development organisation.” – Donald G. Reinertsen. 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. All Rights Reserved. 2. . 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. Don Reinertsen is our favorite author on all things related to Lean NPD. It is, and will remain a work … In SAFe, our jobs are the features and capabilities and epics. The intuition of members of the same team typically differs by 50 to 1, so the real estimate surprises most team members. You would eat the value of each feature until it and any features that come before it are delivered. Use a number for Small, another for Medium, and one for Large. Deferring work may have an economic cost. When you divide it by duration, you can use it to roughly order your backlog but that's about it. The Principles of Product Development Flow. Would it be possible? On the other hand you have maintenance and bug fixing. Whenever we pay less than this amount for time we are improving the economics of a project. Cost of Delay is a way of communicating the impact of time on the outcomes we hope to achieve. 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. To correctly model such a situation one should include the one-time and recurring costs caused by the technical debt. Pingback: ¿Cambiar Comportamientos = Cambiar Cultura? Address PO Box 18027 Boulder, CO 80308 303-323-4296 info@playbook.com. In a life-cycle profit model, it could be worthwhile to amortize your debt by refactoring or cleaning up the code etc. 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. | Johnny Ordóñez. Is it often a surprise for those that really make the effort? We can do this by ensuring that jobs that are delayed the most are jobs with the lowest cost of delay. 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. Anders Sixtensson is a senior Consultant at Softhouse Consulting specializing on Lean Software Development and process improvement. Really liked the last questions and especially Don’s explanation. 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. 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 … What is Cost of Delay? If we can save the same week of cycle time by hiring a consultant for $10,000 it is also attractive. Don Reinertsen first described the WSJF model in 2009 in Principles of Product Development Flow: Second Generation Lean Product Development. Is there a potential penalty or other negative impact if we … Do our users prefer this over that? This sequencing decision should be based on some kind of accumulated cost-of-delay for all the projects together. He calls this the Weighted Shortest Job First (WSJF). Arnold: Don Reinertsen first wrote about Cost of Delay way back in the 80’s. When people hear about Cost of Delay they sometimes doubt whether their organisation is ready for it. 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. Estimated Reading Time: 3 minutes Introduction. 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 … On the other hand, software also has costs that are relatively independent of the quantity of software sold, such as bug fixes. Product teams use this approach to calculate and compare the ongoing monetary costs that would result from delaying the completion of each initiative on … Don Reinertsen says that if you only quantify one thing, quantify the Cost of Delay. 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