Understanding Cost of Delay (Part 2): Delay Cost and Urgency Profiles
Value Flow, Cumulative Value, Delay Cost
and Urgency for time-sensitive feature
(click on image for more detail)
- the value flow (net benefits, positive and negative) each week through the useful life of the proposal, for a given release date
- the change in cumulative value (Net Present Value, NPV, or life-time profits) as a function of time, for a given release date
- the Delay Cost Profile - how much business value is lost as a function of the delay
- the Urgency Profile (the rate at which value is lost as a function of the delay)
What if we were examining a different type of work item which was estimated to save a certain amount of work each week, work which is currently being contracted out to external staff? In other words the same savings would occur every week for the foreseeable life of the product. Here is an estimated projection for the 4 curves in this case ...
Value Flow, Cumulative Value, Delay Cost and Urgency
for a feature providing constant benefit for a period of time
Different again - what about an item that would save a penalty fine from a regulator if a certain issue is not addressed by a fixed date? Here are the curves ...
This work item displays a sudden step-function in cumulative NPV at the point the fine would be applied, and a similar step-function in the CoD about 10 weeks before the date of the fine, since development Lead Time is estimated to be 10 weeks. The urgency profile is a spike - no urgency up to the "last responsible moment" when work must start, and no urgency after this point since you would then have passed the "first irresponsible moment"; there is no avoiding the fine after that point! In reality the CoD and Urgency profiles should be smoother since there is uncertainty in the estimate, and leaving it to the last moment increases the risk of incurring higher costs in order to hit the date, or indeed of missing the date due to unforeseen circumstances.
Value Flow, Cumulative Value, Delay Cost
and Urgency for a feature providing constant
benefit for a period beginning at a fixed date
We can see this case effectively combines the previous two, with a period of low or negative Delay Cost, followed by approximately linear Delay Cost up to the end of the opportunity.
We have taken some time here to look at the 4 curves (Value Flow, Cumulative Value, Cost of Delay and Urgency) for these 4 different types of feature because it is easy to confuse between them. In the case of the "constant benefit" item, the Cumulative Value and Delay Cost look almost identical, with the same units on both axes. This has caused some confusion and some inaccurate statements about the use of cost of delay. Take care!
One of the observations to make about the graphs shown so far is that to estimate and derive them accurately for real features is difficult and error-prone. While this is true, one should not conclude from it that we should therefore estimate a completely different entity, which is easier but not well correlated with the scheduling decisions we wish to make! (Sadly, you may also come across some advice like that.)
However it does suggest that looking at archetype profiles for different types of work item may be helpful. Picking from a menu of profiles, based on the type of feature proposed e.g. diffentiator in a competitive market, cost-saver in a monopoly market, fixed date cost-saver, and so on, is much simpler than trying to derive these curves from scratch. Some tools for Kanban are already offering such features. The profile can be combined with order of magnitude estimates of value and urgency (e.g. using a series such as 1, 2, 5,10, 20, 50, 100, 200, 500, 1000, etc.).
Kanban  defines 4 archetypes with different Delay Cost Profiles which are typically used to differentiate Classes of Service. Black Swan Farming  also suggests some typical profiles. The Kanban archetypes do not correspond exactly to the types of feature discussed above, though there is some overlap.
|Kanban's Delay Cost Archetypes, from Essential Kanban Condensed|
- Expedite items have very high urgency (high CoD) and there is no end in sight to the cost - if you wait, the losses don't come to an end. It's a straightforward decision - do it now!
- The Fixed Date items also have high impact but only if you miss the deadline. The scheduling imperative here is to make sure you start before the last responsible moment and deliver before the deadline.
- The Standard profile is approximately linear to start with and tails off or cuts off as the opportunity loses value. Standard items should therefore be done as soon as possible and scheduled relative to each other according to the degree of urgency and the item's size (see later discussion of WSJF).
- Finally, Intangible items have an apparently low urgency. One might ask why do them? Two reasons. The intangible profile does indicate a rise in urgency - possibly a steep rise - will happen in the future. It is useful to make some progress on these items even though the impact in the short term is likely to be low. In addition having some items in the schedule which are "interruptible" makes the system more resilient in the event of expedite items having to be handled, or events which threaten the service level agreement for standard items.
This is considered in the next blog in this series.
Read part 3 now: How to calculate WSJF
Back to part 1: Understanding Cost of Delay and its Use in Kanban