Determine the Cost of Delay

“By transforming all proxy variables to the same unit of measure, life-cycle profits, we can make the multivariable trade-offs that lie at the heart of product development.”

This quote summarizes my last post on comparing the typical objectives – cycle time, development cost, product cost, etc. – in the same units (profit, aka dollars, technical term: skrilla).

Product developers are endlessly comparing these various objectives and considering trade-offs, so putting everything into an economic framework makes those comparisons easier.

One of the most critical things to quantify economically is the cost of delay. Don makes extensive use of the cost of delay throughout the book, which makes a lot of sense.

If you have no idea how much it will cost you to launch late, you will have little grounds for justifying expenses which expedite or facilitate the product development process.

So how do you calculate the cost of delay? You guessed it – there’s no single method that works for everyone.

Perhaps most important? Get Buy-in.

I would recommend getting the marketing and sales team together and spending an hour or so to establish a general methodology. The critical thing is to have people trust the process and the end result. The cost you come up with is not going to be exactly correct – and Don spends a number of pages acknowledging this – but that’s not the point. The point is to have a trusted, good-enough estimate for the cost of delaying the product X number of days, weeks, and months.

Armed with that estimate, you as a product developer have a much better chance of making good decisions (i.e. decisions driven by economic logic as opposed to gut feeling) regarding your development process.