Time is an asset. delay is a cost (London Limited WiP Society)
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A journey into the meaning, pitfalls, terminology and benefits of Cost of Delay
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Time is an asset. delay is a cost (London Limited WiP Society)
- 1. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 1 Time is an Asset Delay is a Cost Andy Carmichael PHD FBCS ac@openxprocess.com Twitter: #LonLWS @andycarmich slideshare: goo.gl/NNGVOi blog: xprocess.blogspot.co.uk
- 2. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 2 Who is going to win? • Tempo from the Italian for time • An essential element of strategy in chess
- 3. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 3 Time is key to strategy in… • Chess • Warfare (Sun Tsu, Clauswitz, Von Moltke, John Boyd) – See Chet Richards, Stephen Bungay •Business We borrow time… We buy time… We invest time… We save time… We waste time… We spend time… Time “is” Money?
- 4. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 4 Time “is” Money? Time (t) influences Value (V) 𝐷𝑒𝑙𝑎𝑦 𝐶𝑜𝑠𝑡 = − 𝜕𝑉 𝜕𝑡 Δ𝑡 “Cost of Delay” (CoD) A Cost – e.g. measured in dollars A rate of change in value e.g. measured in dollars per week or “Urgency”?
- 5. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 5 Don Reinertsen “Create an economic framework for management decisions” (inventor of the Weighted Shortest Job First approach, WSJF)
- 6. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 6 David J Anderson “Classes of Service, typically based on business impact (cost of delay)… can spare us the need to make a detailed estimates or analysis. “Delay Cost Profiles combined with probabilistic forecasting indicate the urgency of start dates”
- 7. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 7 Joshua J Arnold “To make better trade-off decisions… we needed a way to put a price tag on time “Making CoD visible enabled the conversation to change from delivering on time or cutting costs, to delivering value quickly “Value is rare, extreme and… obvious only in retrospect”
- 8. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 8 Dave Snowden By Snowded (Own work) [CC BY-SA 3.0 (http://creativecommons.org/ licenses/by- sa/3.0)], via Wikimedia Commons
- 9. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 9 Chris Matts “Quantified approaches to work ordering are applicable in complicated but not complex domains”
- 10. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 10 Could Cost of Delay provide a new framework for investment decision-making? • Traditional Business Cases use estimates of cost and benefit • ROI (yield) and • Pay-back schedule (duration) • The rate at which value is lost with delays is not taken into account • We live with the consequences… • arbitrary cost cutting by activity type – travel bans, contractor “holidays”, etc • failure to invest to reduce lead time • These discussions need accountants and software managers to share vocabulary (and goals)… and ultimately to evolve policies that improve outcomes
- 11. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 11 Discovery Operate Define Develop/Deploy Agile Waterfall vs Agile “Capitalisation” TIME Capitalisation policies encourage Work in Progress! Project Selection Define Deploy OperateDevelop Non-Capitalisable Non- CapitalisableCapitalisable Discovery Implementation Value Realisation Waterfall Warning!
- 12. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 12 How to approach Cost of Delay? quantitatively? qualitatively?or
- 13. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 13 Value flow from a new development – “adoption” Cost of development Increasing then decreasing profits/savings Terminology Alert! • Arnold calls these “urgency profiles” • Anderson calls them “adoption curves”
- 17. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 17 The “Last Responsible Moment”
- 18. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 18 -100.0 0.0 100.0 200.0 300.0 400.0 500.0 600.0 0 20 40 60 80 100 CumulativeValue$(K) Time in weeks No delay 10-week delay 20-week delay Cost of 10 week delay Linear benefits profile (e.g. Staff-Saving feature)
- 19. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 19 0510 0 100 200 300 400 500 0 20 40 60 80 100 Urgency$(K)perweek DelayCost$(K) Length of Delay (weeks) Approximately linear Delay Cost Approximately constant “Urgency” Linear benefits: Delay Cost & Urgency Profiles
- 20. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 20 Why WSJF? • Shortest Job First is an effective scheduling algorithm with items of approximately equal value. • May cause large items to be blocked indefinitely • Does not take value of items into account • Does not take Time Criticality (option expiry date) into account • WSJF does take these into account… • By considering the rate at which value is lost through delay and • … the time that the job would block later items
- 21. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 21 WSJF with constant urgency (apply the formula) prioritise highest urgency/duration • Value realised by implementing item 1 then item 2: 𝑉1 + 𝑉2 − 𝑈1 𝐷1 − 𝑈2(𝐷1 + 𝐷2) • Difference in value by doing item 1 first, compared to doing item 2 first 𝑈1 𝐷1 − 𝑈2 𝐷2 𝐷1 𝐷2 WSJF: Favours urgent short jobs 12 wks 4 wks $8pw $3pw D2 Urgency(CoD) Time (weeks) $96 $48 D1 U2 U1 D2 Urgency(CoD) Time (weeks) $112 $12 D1 U2 U1 Total Delay Cost=$144 Total Delay Cost=$140 Total Delay Cost “wisjif” or “CD3”
- 22. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 22 What is “Duration” in the WSJF formula • Customer Lead Time? • System Lead Time? • Touch Time? • Lead Time does not represent how long the team is “blocked” by a different item • In some circumstances* Touch Time or time blocking critical resource (for which an estimate of effort may be a reasonable proxy) should be used * where items are released on completion, rather than waiting for batch releases
- 23. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 23 The notorious SAFe formula for WSJF • All quantities estimated on a 1-20 (sic) “Fibonacci” scale • This is a qualitative rather than quantitative method • The danger of this approach is the use of spurious numbers! • As a qualitative method it may help people talk to each other about value… Couldn’t they do that without playing cards? 𝑊𝑆𝐽𝐹 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐷𝑒𝑙𝑎𝑦 𝑆𝑡𝑜𝑟𝑦 𝑃𝑜𝑖𝑛𝑡𝑠 No. It doesn’t! 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐷𝑒𝑙𝑎𝑦 = (𝑇𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝐵𝑒𝑛𝑒𝑓𝑖𝑡 + 𝑇𝑖𝑚𝑒 𝐶𝑟𝑖𝑡𝑖𝑐𝑎𝑙𝑖𝑡𝑦 + 𝐼𝑛𝑡𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝐵𝑒𝑛𝑒𝑓𝑖𝑡) No. It doesn’t!
- 24. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 24 Arnold’s modification to the SAFe formula This fixes the dimensional inconsistency, subject to assumptions: • Units for Time Criticality are the reciprocal of time* (option expiry) • Size is a proxy for the Blocking Time of item through critical resource *Units for WSJF are Value/Time2 𝑊𝑆𝐽𝐹 = 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐷𝑒𝑙𝑎𝑦 𝑆𝑖𝑧𝑒 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐷𝑒𝑙𝑎𝑦 = 𝑇𝑖𝑚𝑒 𝐶𝑟𝑖𝑡𝑖𝑐𝑎𝑙𝑖𝑡𝑦 ∗ (𝑇𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝐵𝑒𝑛𝑒𝑓𝑖𝑡 + 𝐼𝑛𝑡𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝐵𝑒𝑛𝑒𝑓𝑖𝑡)
- 25. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 25 But it’s impossible to measure Cost of Delay! CoD is the difference between… •benefits we think will happen in the future and •benefits we think would happen in the future, were we to make a decision that we are not going to make!
- 26. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 26 How to approach Cost of Delay? quantitatively? qualitatively?or
- 27. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 27 Value isn’t just increased profit… • Protecting loss of profits • Increased turnover • Increased learning • Reduced risk • Cost saving • New market option • Cover competitors’ moves • Staff retention • Process improvement • etc… How would you put a monetary value on each of these?
- 28. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 28 Qualitative Approaches to ordering work by Cost of Delay 1. Gut feel / HIPPO 2. Size / Value 2x2 matrix 3. Delay Cost Profiles 4. Category Radar Plots 5. Hybrid approaches and combination with probabilistic forecasting
- 29. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 29 Delay Cost Profiles • Expedite: Very high urgency – no end point in sight • Fixed Date: One off impact on fixed date • Standard: Medium urgency; tails off (or cuts off) as value is lost • Intangible: Low urgency, may be followed by high urgency DelayCost($) Delay (time) Intangible DelayCost($) Delay (time) Standard DelayCost($) Delay (time) Fixed Date DelayCost($) Delay (time) Expedite We can define different “Classes of Service” for these archetypes
- 30. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 30 Category Radar Plots • Context specific dimensions of risk and value • Dimensions… • must be Ordinal • not necessarily Interval/Ratio • and not just Nominal Source: David J Anderson http://www.slideshare.net/ScrumTrek/david-anderson-enterprise-service-planning-kanban
- 31. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 31 How urgent is it to start this item? • the ordering of work items (WSJF: Urgency / LT) • Choosing the class of service that is appropriate for the work item • Policies for more value, less risk • Ensuring some intangible items are always in play (interruptible if unexpected / irrefutable demand) • Pay attention to the “last responsible moment” for starting a work item (say, 85% probability point) Source: @lki_dja
- 32. ©2016-2017ANDYCARMICHAELALLRIGHTSRESERVEDLONDONLIMITEDWIPSOCIETY2017 32 Know the context… • Chaotic (high risk, uncertain) domains are not susceptible to quantitative analysis • Obvious domains don’t require it • Complicated domains are most suitable to quantitative analysis • Complex domains may benefit from a qualitative or hybrid approach By Snowded (Own work) [CC BY-SA 3.0 (http://creativecommons.org/ licenses/by-sa/3.0)], via Wikimedia Commons
Editor's Notes
- Time is an Asset, Delay is a Cost: Applying qualitative and quantitative analysis for competitive advantage abstract In competitive product development, time often trumps cost and value. While cost of delay is now a part of our vocabulary, how to use it is less understood. Hear the historical context of time-agility strategies, have equations and qualitative approaches demystified - make more effective decisions. description While cost of delay has become a fashionable topic for Agile practitioners, agreement as to the correct way to apply it has been harder to find. This presentation will look to the historical use of time and agility to create winning strategies. It examines proposals to quantify cost of delay in product management contexts, and explains the justifications for the resulting formulae and archetypes - where appropriate giving the limitation of their applicability and when to apply different approaches. Finally the presentation looks to the synthesis of these ideas to use quantitative calculations and qualitative analysis in formulating product investment and development strategies. Notes Tags Kanban, agileatscale, lean product development, costofdelay, wsjf bio Andy Carmichael is a coach, consultant and business builder who has been at the forefront of process change in software development teams for many years. His clients include major players in finance, software engineering, utilities and telecoms - as well as a number of startups and SMEs - all of whom share the goals of gaining competitive advantage through increased business agility. He is active in the Kanban community and is a Kanban Coaching Professional. Andy has edited and co-authored four books books: Essential Kanban Condensed (with David Anderson), Object Development Methods, Developing Business Objects and Better Software Faster (with Dan Haywood). When not engrossed in technical work, he enjoys singing, golf and entertaining.
- Why Net Present Value? Takes into account cost of capital and risk of non-realisation of value.
- Error in graph?
- Power law rather than Fibonacci
- Nominal - Qualitative variable with out order (only categorisation possible) example : gender, departments, etc. Ordinal - Qualitative variable with order (categorisation and order) example Rank, credit rating as High risk, medium risk, Low risk etc. Interval - Quantitative variable without fixed origin.( has fixed distance but no fixed origin) example - temperature Ratio - Quantitative variable with fixed origin. all quantitative variables are in this category , salary, expenditure, etc.