Estimating Cost of          Delay             Sydney Limited WIP Societyhttp://www.meetup.com/The-Sydney-Limited-WIP-Socie...
“Speed is not the objective,it is a means to an end; theobjective is making money.”
Think of “money” as a proxy for what you   define as value
Split up into teams          (5 min)• Introduce yourselves• Choose a “new” product idea including a  rough idea of what it...
Simple Test            (5 min)• Each member of your team, separately  write down your answer: • What is the cost of delayi...
What is the range of of   the answers?• What do you think the range would be in  your real-life teams?
4 key objectives
Economic modeling     process
Develop Baseline    Model
Considerations for the   baseline model•   Pricing Trend•   Market Size x Market Share = Unit Sales•   Unit Sales x Unit P...
Copy and modify from  the business plan!
Ask for help from the Finance department
Develop Variations
What if...• Development expense overrun by 50%?• Unit cost overruns by 10% for 2 years?• Unit sales are overestimated by 1...
Convert to Decision      Rules
Should we add an extra  feature that will delaythe project by 2 months?
Should we add a feature that   will add $320k of value inexchange for delaying 2 months    which will cost $1.4M?
Tips on Modeling
Accuracy is almost always    controlled by theaccuracy of the input data
Don’t bother with Net Present Value, Discounted Cash Flow,  Internal Rate of Return, etc.
“If people do not understanda model, they are less likely tolet it influence their behavior”
The Simpler Version
http://toolsforagile.com/blog/archives/647
http://agileconsulting.blogspot.com/2011/03/using-cost-of-delay-functions-to.html
3 fundamental ideas• Quantify the cost of delay• Balance development speed against other  objectives using decision rules•...
Discuss
Estimating Cost of Delay
Estimating Cost of Delay
Estimating Cost of Delay
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  • Estimating Cost of Delay

    1. 1. Estimating Cost of Delay Sydney Limited WIP Societyhttp://www.meetup.com/The-Sydney-Limited-WIP-Society/ Jason Yip @jchyip j.c.yip@computer.org http://jchyip.blogspot.com
    2. 2. “Speed is not the objective,it is a means to an end; theobjective is making money.”
    3. 3. Think of “money” as a proxy for what you define as value
    4. 4. Split up into teams (5 min)• Introduce yourselves• Choose a “new” product idea including a rough idea of what it’s worth
    5. 5. Simple Test (5 min)• Each member of your team, separately write down your answer: • What is the cost of delaying the project 3 months?
    6. 6. What is the range of of the answers?• What do you think the range would be in your real-life teams?
    7. 7. 4 key objectives
    8. 8. Economic modeling process
    9. 9. Develop Baseline Model
    10. 10. Considerations for the baseline model• Pricing Trend• Market Size x Market Share = Unit Sales• Unit Sales x Unit Price = Dollar Sales• Unit Cost Trend• Project Operating Expenses: Development, Marketing (% of Sales), General & Administration (% of Sales)• (Cumulative) Profit Before Tax
    11. 11. Copy and modify from the business plan!
    12. 12. Ask for help from the Finance department
    13. 13. Develop Variations
    14. 14. What if...• Development expense overrun by 50%?• Unit cost overruns by 10% for 2 years?• Unit sales are overestimated by 10%?• Schedule is delayed by 6 months?
    15. 15. Convert to Decision Rules
    16. 16. Should we add an extra feature that will delaythe project by 2 months?
    17. 17. Should we add a feature that will add $320k of value inexchange for delaying 2 months which will cost $1.4M?
    18. 18. Tips on Modeling
    19. 19. Accuracy is almost always controlled by theaccuracy of the input data
    20. 20. Don’t bother with Net Present Value, Discounted Cash Flow, Internal Rate of Return, etc.
    21. 21. “If people do not understanda model, they are less likely tolet it influence their behavior”
    22. 22. The Simpler Version
    23. 23. http://toolsforagile.com/blog/archives/647
    24. 24. http://agileconsulting.blogspot.com/2011/03/using-cost-of-delay-functions-to.html
    25. 25. 3 fundamental ideas• Quantify the cost of delay• Balance development speed against other objectives using decision rules• Ensure decision makers consistently use the decision rules
    26. 26. Discuss
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