Cost of Delay

Cost of Delay is a measurement that considers the value of something relative to time, which makes it a superior measurement to simple value. Technically, it is the difference between the benefit (net present value) that would be available from a work item if it were completed without delay and the benefit if it were delayed by a period of time. Measured in consistent units of value such as dollars.


“If you only quantify one thing, quantify the cost of delay” says the paragon of product flow, Don Reinertsen. The whole point is to do it in money (economic) terms, which means don’t do it the way SAFe tells you to, since SAFe’s cost-of-delay guidance both conflates the various archetypes (e.g., standard, expedite and date-driven) and its result is expressed in something other than money/cost.

One common manifestation of cost-of-delay planning, Weighted Shortest Job First, requires knowledge of two things, Cost of Delay and Duration, both of which are notoriously difficult to know in knowledge work. My guidance is to use the following table when choosing a sequencing strategy — WSJF may not be the right one for you.

Cost of Delay (CoD) is the rate at which the value of a product, initiative or work item decays when its delivery is delayed; that is, the Delay Cost per unit of time. Cost of Delay may be used to inform time-
related decisions, including the ordering of items during replenishment. The plot of CoD against delay period is referred to as the Urgency Profile.

From Essential Kanban Condensed:
A key to understanding and maximizing the flow of value is the cost of delay (CoD) of work items.
The amount of an item’s value that is lost by delaying its implementation by a specified period of
time is referred to as the delay cost, and the rate at which the value changes (the delay cost per
time period) is referred to as the urgency or the cost of delay. In general, both delay cost and
urgency vary with the length of the delay.

Mike Burrows describes it as “an elegant way to understand the time-dependence of value and a good
guide to scheduling decisions.”

Archetypes

From Essential Kanban Condensed:
Kanban uses four archetypes to characterize how the value of items changes with delay: expedite,
fixed date, standard, and intangible. These archetypes may be used to assist in ordering work
items, or they may define different classes of service, where different policies are applied to
different types of work.

Standard Urgency

Standard urgency items are perhaps best described as “the sooner, the better.”

Fixed-Date

No economic benefit from completing the item before the date, but incurs cost if delivered after the
date.

Expedite

Expedite items are costing us now. Most production defects are expedites.

Intangible

Intangible items are those with a difficult-to-ascertain cost and/or time. Most tech-debt items fall into
this category, as well as upgrades (e.g., upgrade to the latest Javascript framework version).

Why Cost of Delay?

From Lean Enterprise:
Putting in place an economic model [based on Cost of Delay] not only allows you to make rational
decisions at the portfolio level. Crucially, it enables everybody in the organization to make
transparent, globally-optimal decisions at the program, project and process level, enabling leaders
to delegate responsibility for these decisions to the people with the most knowledge of the current
state.

It can be used to answer questions including:

  • Should we delay our product release to wait for more features?
  • Should we invest in automating a process or hire people to perform it manually?
  • Should we reduce batch size for a particular process, and if so, by how much?
  • What is the optimal work in process limit for a particular process?
  • What is the optimal utilization for a particular team?
  • What work (including features or process improvement work) should we prioritize?

Criticism

Daniel Vacanti has criticized cost of delay in general, while others, like Jason Yip, have criticized
WSJF in particular.

Vacanti essentially claims that in complex knowledge work, people are not good at guessing either
value or duration, rendering WSJF an illusory and possibly misleading strategy:
CD3 (Cost of Delay Divided by Duration) is often touted as a prioritization/sequencing method
used to help an organization maximize its value delivery. However, CD3 requires a specific set of
assumptions to be true in order to provide an optimal result. Those assumptions are simply not
valid in most complex product development environments. In those contexts, focusing on duration
by making items as small as possible is the strategy that wins out over the long term. In short, it’s
not “outcomes over output”; it’s “output over outcomes”.

Yip:
(Because) in SAFe-style WSJF, “cost of delay” is the sum of a set of relative size estimates… SAFe-style Cost of Delay is no longer useful as a decision rule for trade-off decisions.

and

Cost of Delay already accounts for overall value, (so) SAFe-style WSJF misses the fundamental point that we do not need to know overall project value for prioritisation if we know cost of delay.

and

WSJF can be done with relative scaling but there’s no need to add additional parameters as in SAFe-style WSJF.

Related pages

Sources and Resources

  • Urgency Profiles
  • Delay Cost and Urgency Profiles
  • Kanban, Chapter 11, p.123
  • Kanban from the inside, p.138
  • Essential Kanban condensed, Manage Flow, p.21
  • http://blackswanfarming.com/cost-of-delay-divided-byduration/
  • Black Swan Farming using Cost of Delay (case study)
  • Developing Products in Half the Time (chapter 2?)
  • Don’t Be a Ditka
  • Problems I have with SAFe-style WSJF