Cost of Delay

Notes

• Flow principle E3 states—"If you only quantify one thing, quantify the cost of delay."

• Cost of delay (COD) determines the financial impact on the company if it releases a product on the market earlier or later. When a product arrives on the market X months earlier, revenues also roll in X months earlier.

• The figure below shows the economic impact of a prioritization sequence. Considering each feature takes 3 weeks to finish and generates $10,000 once released, the second scenario generates $60,000 ($$40,000 from A and $20,000 from B) for the company.

Prioritization sequence has an economic impact.

• COD is the more eye-opening measurement that a company can infer because if you can't quantify the cost of a queue on the critical path, you can't quantify the benefit of reducing it.

• You can evaluate the following costs using COD:

  • the cost of queues
  • the value of excess capacity
  • the value of variability reduction
  • the benefit of smaller batch sizes.

Tweet

References

• The Principles of Product Development Flow
• Rethinking Agile

Backlinks

• The Principles of Product Development Flow
• Economic Waste that Queues Create
• The Economics of Holding WIP Changes when Queue Size Changes