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Estimating Cost of Delay

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Estimating Cost of Delay presentation for Sydney Limited WIP Society

Estimating Cost of Delay presentation for Sydney Limited WIP Society

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Transcript

  • 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. “Speed is not the objective,it is a means to an end; theobjective is making money.”
  • 3. Think of “money” as a proxy for what you define as value
  • 4. Split up into teams (5 min)• Introduce yourselves• Choose a “new” product idea including a rough idea of what it’s worth
  • 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. What is the range of of the answers?• What do you think the range would be in your real-life teams?
  • 7. 4 key objectives
  • 8. Economic modeling process
  • 9. Develop Baseline Model
  • 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. Copy and modify from the business plan!
  • 12. Ask for help from the Finance department
  • 13. Develop Variations
  • 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. Convert to Decision Rules
  • 16. Should we add an extra feature that will delaythe project by 2 months?
  • 17. Should we add a feature that will add $320k of value inexchange for delaying 2 months which will cost $1.4M?
  • 18. Tips on Modeling
  • 19. Accuracy is almost always controlled by theaccuracy of the input data
  • 20. Don’t bother with Net Present Value, Discounted Cash Flow, Internal Rate of Return, etc.
  • 21. “If people do not understanda model, they are less likely tolet it influence their behavior”
  • 22. The Simpler Version
  • 23. http://toolsforagile.com/blog/archives/647
  • 24. http://agileconsulting.blogspot.com/2011/03/using-cost-of-delay-functions-to.html
  • 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. Discuss