Estimating Cost of Delay in Agile Projects with Time-Value Profiles

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Summary:
The cost of delay for releasing a product can be due to many factors, but that value loss can seem like an abstract concept. Attaching hard numbers to a release timeline in the form of a time-value profile helps the development team and business stakeholders have a conversation about how long they have to build a product and when it would be best to enter a market.

The term cost of delay tends to lead people to think about extra costs incurred because something is delivered late, as in using express shipping because manufacturing took longer than expected. But extra costs—a form of waste to lean thinkers—are often dwarfed by revenue forgone because a product is not in the market earlier.

This lost revenue is usually not considered because it was never seen in the first place, but it is real. Cost of delay includes missing out on sales due to such things as the customer finding an alternative solution, missing some critical date, or losing out to rivals (retaining such sales is sometimes called revenue protection).

And of course, if you spend less time developing a product, there is every possibility that the costs of product development will be lower, too.

Yet I find the concept of cost of delay from any of these sources is often too abstract for most people. This changes quickly if you write a number—almost any number!—on a story.

For example, you could write 10,000 on a development story and tell the development team, "This story is worth 10,000 if we deliver it tomorrow." Next you could ask, "If we deliver it a week later, would it be worth more or less than 10,000?" Developers will answer that it is worth less, which allows you to ask, "How much less?" Say the answer is "Just a bit less," so you might write "+1 week: 9,750."

You can repeat this process for different intervals: one month, three months, six months, a year. That allows you to construct a graph that I call a time-value profile, as shown in the figure below.

Time-value profile for a project

The time-value profile shows the value for a given piece of work at different points in time and how that value changes. This graph is useful in itself, but it can be even more useful.

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