Cost of Delay

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Contents

Purpose

A Cost of Delay (CoD) function is a simple way to profile the impact of not completing a unit of work (e.g. Feature, Minimum Marketable Features) for the project. Cost of Delay is also known as Opportunity Cost and is often graphed as a line showing the relationship between impact and time, the steeper the angle of the line, the worse the impact is over time. CoD can represent financial, political, moral, or other impact that could adversely impact the organization.

Cost of Delay allows the business and delivery teams to represent work based on impact to the business. While it is often very difficult to determine the exact cost or impact to the business for each Cost of Delay profile, both the delivery team and the business can agree on which profile accurately represents each piece of work and create a shared understanding of the significance of each piece of work.

Benefit

Describing work in terms of cost of delay will lead to simple and automated work prioritization. Cost of Delay, combined with policies, allow both the delivery organization and the customer create a shared understanding of how work will be treated once it enters the system. When work is defined in terms of each cost of delay profile, it automatically gets prioritized in the system based on the policies defined.

This technique also fits well with a Kanban system. Different cost of delay profiles may be visualized on a Kanban system with WIP limits defined for each profile. WIP limits ensure that the delivery organization can meet the service level agreements defined for each CoD. By visualizing work with corresponding CoD profiles, the customer may prioritize just-in-time as riskier work enters and leaves the system.

Cost of Delay Profiles

There are 4 common Cost of Delay profiles that can be applied to different types of knowledge work at the work ticket level. A Cost of Delay profile typically consists of a standard definition, set of policies, and a service level agreement. Below are each of the 4 examples and their profiles.

Emergency Cost of Delay Profile

Highest risk to the business

The Emergency Cost of Delay represents the highest risk and an immediate impact to business. Work classified as Emergency requires specialist resources to immediately stop other work in progress and begin work on the expedite class item. Release dates may be adjusted to accommodate the required delivery date. Example: Break-fix type of work that needs immediate attention; automatically jumps work queues. There are two cost scenarios:

  1. High Impact on a single date/point in time; and
  2. Impact significantly increases over a short period of time. In either scenario, the cost of delay is within the typical lead time which characterizes the work as an emergency.

Policies

A set of policies may be defined for each Cost of Delay. These policies will create a shared understanding between the delivery team and the business. Policies will explicitly identify how work with a given Cost of Delay will be treated when it enters the system. Sample Emergency policies below:

  • Only one expedite request will be permitted at any given time
  • Expedite requests will be pulled immediately by a qualified resource, other work will be put on hold
  • The Kanban limit at any point in the workflow may be exceeded in order to accommodate the expedite request

Fixed Date Cost of Delay Profile

Medium to high risk to the business

The Fixed Date Cost of Delay represents medium to high risk and an immediate impact to business after the required delivery date. Typically, a Fixed Date CoD is based on a delivery date constrained by a legal commitment with a customer or supplier, regulatory/legislative requirements, or ministerial promise in a Public Sector context. Fixed Date items are selected for delivery over standard work and may be promoted to Emergency if the work is late. Fixed Date CoD follows the same two cost scenarios as the Emergency CoD:

  1. High Impact on a single date/point in time; and
  2. Impact significantly increases over a short period of time. Different from Emergency CoD, Fixed Date work would start in-time to ensure that the defined delivery date can be met within typical lead times.

Policies Sample Fixed Date policies below:

  • The required delivery date will be displayed on the bottom right hand corner of the work ticket
  • Fixed delivery dates will receive some analysis and an estimate of size and effort may be made to assess the flow time
  • Fixed delivery date items will be given priority of selection for the input queue at the appropriate time

Standard Cost of Delay

Medium risk to the business

Standard work is characterized by a Standard Cost of Delay. The Standard CoD represents shallow and immediate impact with medium risk to the business. Most of the delivery team's work, needed with some urgency, can be categorized as a Standard CoD. Standard work is usually processed on a First-In-First-Out basis. Standard work, over time, becomes more urgent and will be upgraded to higher Cost of Delay profiles.

Policies
Sample Standard policies below:

  • Standard class items will use First in, First out (FIFO) queuing approach to prioritize their pull through the system
  • Standard class items will queue for release when they are complete and ready for release. They will be released in the next scheduled release
  • No estimation will be performed to determine a level of effort or flow time

Investment No Cost of Delay

No or very low risk to the business

The Investment CoD represents a low impact to the business with almost no risk. Investment work typically has no tangible cost of delay in the near future. This type of work is done as needed and justified as necessary to continue developing with high quality and speed. Some examples include: design patterns, selection of technology frameworks, and overall architecture. Investment work takes lowest priority and can be displaced by all other classes of work.

Policies Sample Investment policies below:

  • Investment class items will be pulled through the system in an ad hoc fashion
  • No estimation will be performed to determine a level of effort or flow time
  • Typically, the preference would be to put aside an intangible class item in order to process an expedite request

Additional References

Cost of Delay for Product Delivery: http://agileconsulting.blogspot.ca/2011/03/using-cost-of-delay-functions-to.html

Skills Exhibited

The skills exhibited in the Lean Learning Machine when doing Story Mapping are as follows:

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