The document discusses estimating the cost of delaying a project. It suggests splitting into teams to brainstorm new product ideas and estimate what delaying the project by 3 months would cost. Key considerations for developing a baseline economic model include pricing trends, market size and share determining unit sales, unit costs, development and marketing expenses. The model can then be used to develop variations considering delays, cost overruns, or sales estimates being off. Decision rules should be created to help determine if added features justify potential delays or costs. Keeping models simple and ensuring decision-makers understand and apply the rules is important.

1. Estimating Cost of
Delay
Sydney Limited WIP Society
http://www.meetup.com/The-Sydney-Limited-WIP-Society/
Jason Yip
@jchyip
j.c.yip@computer.org
http://jchyip.blogspot.com

3. “Speed is not the objective,
it is a means to an end; the
objective is making money.”

4. Think of “money” as a
proxy for what you
define as value

5. Split up into teams
(5 min)
• Introduce yourselves
• Choose a “new” product idea including a
rough idea of what it’s worth

6. Simple Test
(5 min)
• Each member of your team, separately
write down your answer:
• What is the cost of delaying the project 3
months?

7. What is the range of of
the answers?
• What do you think the range would be in
your real-life teams?

8. 4 key objectives

9. Economic modeling
process

10. Develop Baseline
Model

11. 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

12. Copy and modify from
the business plan!

13. Ask for help from the
Finance department

14. Develop Variations

15. 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?

17. Convert to Decision
Rules

19. Should we add an extra
feature that will delay
the project by 2 months?

20. Should we add a feature that
will add $320k of value in
exchange for delaying 2 months
which will cost $1.4M?

21. Tips on Modeling

22. Accuracy is almost always
controlled by the
accuracy of the input data

23. Don’t bother with Net Present
Value, Discounted Cash Flow,
Internal Rate of Return, etc.

24. “If people do not understand
a model, they are less likely to
let it influence their behavior”

25. The Simpler Version

26. http://toolsforagile.com/blog/archives/647

27. http://agileconsulting.blogspot.com/2011/03/using-cost-of-delay-functions-to.html

28. 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

29. Discuss