Defining the Cost of Delay

As many of you know, the “Value Visualization of IT” is a topic I am passionate about. I’ve written numerous articles, blog posts and even a book on this subject, as well as spoken about it at many conferences and events. I believe that understanding the value of a software development project is so critical to its success that I created a concept known as the Value Visualization Framework (VVF). In September, I walked through the 5-step VVF process, which provides a clear directive to discuss, define, measure, and prioritize software development initiatives based on their ability to deliver on the value expectations.

After completing the first three steps of the process: defining the units of value delivery, the value of the project in specific units and the size of the initiative, the next step is defining the “Cost of Delay” of the implementation challenge, including level of complexity, duration, etc. This step is crucial in prioritizing work packets or projects or stories. Essentially, we should always prioritize projects with the highest cost of delay. However, identifying the cost of delay for a particular story is neither intuitively obvious nor easy. The following are three potential approaches to defining the cost of delay:

1st Approach: Explicit Cost

  1. Penalty if completion date is missed (e.g. $2,500 fine if not completed by Day 15)
  2. Missed opportunity (e.g. the loss of an incentive – 30 new subscribers will sign up if delivered by Day 17 or not!)

 2nd Approach: Cost if Stories in Software Development are Too Long

 The following table shows examples of costs of delay for excessive times in software development

Cost of Delay

3rd Approach: Relative Cost of Delay of One Story Against Another

This approach can allow cost of delay to be assigned by an informed and representative team with relatively little data. The process is similar to story estimation in Agile using planning poker. Usually a limited set of numbers (Fibonacci or modified Fibonacci e.g. Cohn Scale - Popularized by Mike Cohn for use in Story Points: 0, 0.5, 1, 2, 3, 5, 8, 13, 20, 40, 100, ?) are used and participants must choose from this and set the relative cost of delay for each story against the other stories, as in the figure below.

Cost of Delay for Stories

The fifth and final step of the VVF process is quantifying the economic value once deployed. Watch for an upcoming post discussing this step.

Michael D. Harris
DCG President


Written by Michael D. Harris at 05:00
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"It's frustrating that there are so many failed software projects when I know from personal experience that it's possible to do so much better - and we can help." 
- Mike Harris, DCG Owner

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