What is the cost of delay?
The cost of delay (COD) explains the impact of time on the outcomes we seek” It’s the partial derivative of the total expected value concerning time. Cost of Delay combines knowledge of matter with an awareness of how that value diminishes over time.
Why Using the Cost of Delay metric
The cost of a delay metric, which separates urgency from value, provides a more accurate picture of how you should distribute resources.
In software development, IT operations, or general product development, you can use it to approach projects systematically. From the perspective of a product manager, the cost of delay framework is an effective decision-making tool that has the potential to shift an organization’s thinking radically.
Furthermore, the cost of delay accomplishes its goals by applying a value lens to the discussion of prices and timelines and providing full-scenario visualizations of what the most crucial activities are in the first place.
Benefits of Cost of Delay metric
It is a helpful prioritization tool
.This framework is a powerful decision-making tool that helps product managers prioritize tasks based on their monetary value, removing the need for inefficient resource allocations.
It is profitable
The increased clarity in decision-making translates into a higher return on investment (ROI), even with limited resources. If a task’s user business value and time criticality are appropriately estimated, software development teams can approach projects with an eye toward the real-world profits they will bring in.
It helps stakeholders’ management
Another advantage of the cost of delay is the capacity to manage stakeholders’ expectations by giving measurable data, which you may use to manage expectations. Cost of delay provides insight into the financial risks and opportunities that arise from each change in scope and schedule.
As a result, the cost of delay metric becomes a potent indicator of financially tough trade-offs in various situations. The framework gives detailed monetary figures for various distribution alternatives that would be difficult to examine.
Finally, but certainly not least, the financial consequences of a delay urge a shift in business culture. Instead of focusing on less-useful measures (such as previously agreed-upon dates), the emphasis is shifted to meaningful criteria representing the priorities of value and urgency.
How to use the Cost of Delay metric
To determine the cost of delay, you must first estimate the monthly user business value that a given feature would bring and then multiply that estimate by the time criticality of the element in question (duration required for the build).
So, if Feature A takes four months to develop and has a monthly user business value of $8,000, the cost of development (CoD) is computed by multiplying four by 8,000 ($32,000) and dividing the result by four. As a result, each month of delay would increase the delivery cost by $8,000.
Imagine you have many tasks in your backlog that you want to prioritize.
Let’s use two features as an example for the sake of simplicity. Consider the following scenario: you have both Feature A and Feature B. As we all know, Feature A takes four weeks to develop and generates $8,000 per month in revenue. Feature B will take 12 weeks to build. But will produce $15,000 per month in income.
Which one should you put first on your list?
You will need to calculate another parameter known as CD3 at this point, which will make things more fascinating (CoD divided by duration). To get this figure, divide profit by period and multiply the result by 1,000.
This results in Feature A having a CD3 of 2 (8,000/4/1,000), whereas Feature B has a CD3 of 5 (15,000/3/1,000). This is Feature B in this situation, and it is the greater CD3 that indicates the feature you ought to prioritize.
User business value, time criticality, and cost of delay divided by duration, often known as CD3, are the three key components of cost of delay. These criteria serve as a starting point for assessing the cost of delay and prioritizing features based on full-management scenarios.
Product managers can prioritize projects based on the project’s complexity by analyzing the Cost of Delay (CoD) associated with various management situations. When it comes to large-scale projects, they can forecast how costs might alter if they are prioritized by value, time, or CD3, as described above.
The cost of delay is a critical business indicator that provides insight into the relationship between time and value. Specific to business, measuring the cost of delay enables organizations to estimate the economic impact of delaying a product launch to market. After all, there are occasions when it makes sense to introduce a new product or upgrade quickly, while others make sense to divert your attention elsewhere.