Do you know about the Cost of Delay? It's the way to think about the revenue you can lose plus the cost of continued development.

One of my managers many years ago had a back of the napkin approach to cost of delay.

“Johanna, we want to ship this product in the second quarter this year. We estimate it will take us a quarter to ramp up sales. We think there is a lifetime sales of about five years for this product. Any delays in our shipment will not push our sales figures to the right. They will remove our max sales from the middle. Got it? We have to make our ship date.”

I got it.

There weren't too many of us developers in that organization. We all knew what our job was: to release on time, and make sure the product was usable. The product didn't have to be perfect. The product had to be usable, because we could release fixes if we needed to, but we had to climb that sales ramp to get to that max sales point.

We worked on one project at at a time, until it was done. Then we went to the next project. We worked on that project. None of our projects was very long. Why? Because we needed to realize revenue. You can't realize revenue with a product-in-a-box if you don't ship it.

We didn't ship too many fixes. Oh, not because we were perfect the first time. We asked each other for review, and we found problems, so we fixed them inside the building. Before we shipped. Because the cost of not shipping on time was too great.

When you delay your release and don't ship on time, you miss the revenue from the maximum sales times. Take your delay in weeks, and remove the revenue weeks. That's your cost of delay, back of the napkin approach.

You can go through more serious calculations. Troy Magennis of Focused Objective talks about a “compounding impact” on other projects. I am sure he's correct.

But even if you said, “Every week we slip, we lose at least a week of revenue from our maximum sales week of revenue,” do you think people would notice?

How do you release on time? You fix scope (ha!). You have release criteria. You have shorter projects, because they are easier to estimate and deliver. You use an incremental or an agile lifecycle, so you have more predictability about your release.

This post is the simple idea of not shipping on time. But what about when you have competing projects and not enough people? Look for Part 2, next.

P.S. After I wrote this post, I realized I was not living this post. (Why do you think I write? It's not just for you. It's for me too.) I published the incomplete Essays on Estimation. I have another essay or two to release. But if I don't release it, you can't read it and get any value from it, can you? The point: if you don't release your products, your customers can't get any value. Hat Tip to @jlottsen who said in a tweet, “you have to release it, or no one can use it, and you can’t realize any revenue at all”. Very true.

COD Series:

Jutta Eckstein and I gathered all of these posts into a book: Diving for Hidden Treasures: Uncovering the Cost of Delay in Your Project Portfolio.

Share this: Email

Twitter

Facebook

LinkedIn

Tumblr

Print



Like this: Like Loading...