estimating value through the lens of cost of delay

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Estimating Value through the Lens Of Cost Of Delay

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Before we begin, a shift in mindset around how we think about delivering value

https://vimeo.com/101506552

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Think about Organizational Agility as the act of continuously looking for ways to reduce the time between coming up with a hypothesis of value

and validating that value by deploying it to the market

We want to equip you with practical tools that can enable that shift in mindset needed when it comes to delivering value with Agility

• Time is your most precious asset• Value decays over time

Time

• Delay is your most expensive obstacle• Delay costs you more than inefficiency• Remove sources of delay

Delay

• Estimate value quickly and collaboratively• Accuracy over Precision

Precision

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During this session we want to provide you a chance to analyze real work through the lens of delivering value with increased agility

Estimating Lead and Delay Time (15 minutes)

Estimating Cost Of Delay(15 minutes)

Ranking with CD3(10 Minutes)

CD3 Score

Cost of

DelayDuratio

n=

Review and Next Steps (5 minutes)

EXERCISE: Cost of Delay and CD3 (30 minutes)

EXERCISE: Lead Time, Value Type & Urgency Profile (30 minutes)

Identifying Value and Urgency (15 minutes)

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We will work as a team to estimate the value of at least one feature using the following Feature Value Estimation Canvas

FEATURE PROBLEM/IDEA/OPPORTUNITY DESCRIPTIONVALUE

(t-shirt sizing)Create functionality so that TheBusiness notifies customers when travelling internationally to prevent card getting blocked

VALUE TYPE (choose one) URGENCY PROFILE (choose one)Increase Revenue - Protect Revenue -

Reduce Cost - Avoid CostExpedite - Fixed –

Standard - IntangibleVALUE MODEL

Assumption Factor (with unit) Confidence

Cost of delay = # customers affected * likelihood of event * call duration * hourly rate * %customers who would use solution

COST OF DELAY (per months)=

LEAD TIME (months)= DELAY TIME (months)=

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CD3 Score

Cost of

DelayDuratio

n=



Agenda



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DelayTime

Let’s look at Cycle Time, Delay Time and Lead Time through a common experience for most people – ordering coffee

Walk into Starbucks Wait in Line Take Order Produce Order Deliver Order

Delay Time

Delay Time

Cycle Time Cycle Time Cycle Time

Lead Time

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For knowledge work, Lead Time can be measured by agreeing on a Commitment Point and Delivery Point within your Porfolio or Team

Intake Scoping Options Analysis Build Validate Ready Deployed

I1 I2

I3

S1 S2 B1 B2

B3 B4

P2

P3

D2 C2 C1

C3

A1 D2D1

D3

Tech Lead Time

Doing Done Doing Done Doing Done

D1P1

CT CT CT Cycle TimeCycle TimeDelay Time Delay Time DT DT DT

A2

Tech Commitment

Point

• Work before the commitment point can be considered to be an option

• Minimal work to prepare an option• Customers and suppliers negotiate the commitment

point based on the improvement they are looking for in the system

Tech Delivery Point

Market Lead TimeBusiness

Commitment Point

Business Delivery Point

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An organization is delivering value with agility if it strives to reduce lead time between idea generation to validating it through market feedback

Start increase Agility by• Reducing Lead time• Delivering less at a time, more often• A balance of success and failure• Increasing the frequency of customer

insights with tight feedback loops

Do not try to • Increasing throughput• Maximizing Efficiency• Avoiding Failure

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Why is there a delay?

1

Sample Delay Themes• Different Teams & Porfolios have different priorities on their backlog• Too much Work in Progress• Outcomes are too Big – Need to Thin Slice!• Teams are specialized, lots of hand-offs required• Rework• Over Specified

Solve or Reprioritize to Lessen the Delay

2

Delay Time

Lead Time

Reducing lead time can be accomplished by identifying sources of delay and removing them

Plan

ImproveLearn

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Simple Lead Time and Delay Time for our example









LEAD TIME (months)= 3 DELAY TIME (months)= 2

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3 Things to Remember: Estimating Lead and Delay Time

1. Lead Time for Knowledge Work is measured by defining the Commitment Point and Delivery Point, and measuring the time it takes to get from one to the other

2. An organization is delivering value with agility if it strives to reduce lead time

3. Reducing lead time can be accomplished by identifying sources of delay and using PDCA to remove these sources of delay

Summary: To know if we are delivering with Agility, we can start by measuring Lead Time to see if it is improving for our Porfolio or our Team. If the Lead Time is long, ask WHY and find out how to reduce the Delay Time.

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CD3 Score

Cost of

DelayDuratio

n=



Agenda



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Key to estimating value is being able to shift to a mindset of making decisions based on imperfect information and assumptions

When it comes to estimating value, the biggest barrier is usually our own

fixed-mindset:

We tell ourselves it can’t be done, because the “intangible” benefits cannot be quantified,

or in any way estimated

Not estimating value

Precise measurement of value

• Prejudices & Perceptions• Fears• Uncertainties

• Fixed Mindset• Analysis Paralysis

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First steps to improvements are:• high quality conversations• smaller increments• estimate your assumptions• manage the impact of delay

Cross Functional group estimates value

Key to estimating value is being able to shift to a mindset of making decisions based on imperfect information and assumptions

So that we can evolve to:• Measure value of small features• Deliver value using an experimental

mindset• Pivot or pursue based on what we

learn

Not estimating value

Precise measurement of value

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Source: http://blackswanfarming.com/value-a-framework-for-thinking/

Begin by selecting a Value Type - a simple framework for assessing the economic impact of the investment decisions we are making

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• High and immediate impact to business• Major lost opportunity if not immediately addressedOur customers privacy is exposed until we make this fix

• Shallow but immediate impact to business• Incremental revenue or Cost avoidanceWe will get more paying customers if they can subscribe online

• No / low immediate impact to business• New / improved capability Once we have the ability to deliver application features using local people, we will have the autonomy we need to deliver at market speed

• Medium or High impact to business• Of no value past a certain dateOur Christmas Marketing Campaign had better be done before Christmas

Expedite Class

Standard Class

Intangible Class

Fixed Date Class

Continue the conversation by assigning an Urgency Profile; clarifying the risk and cost inherent in not doing the work

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Our example continued by showing Value Type and Urgency Profile










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3 Things to Remember: Identifying Value and Urgency

1. Key to estimating value is being able to shift to a mindset of making decisions based on imperfect information and assumptions

2. Begin by selecting a Value Type - a simple framework for assessing the economic impact of the investment decisions we are making

3. Continue the conversation by assigning an Urgency Profile; clarifying the risk and cost inherent in not doing the work

Fixed Standard Intangible Expedite

Increase Revenue

Protect Revenue

Reduce Cost Avoid Cost

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CD3 Score

Cost of

DelayDuratio

n=


Agenda




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Fixed (Regulator

y)Standard (Revenue)

Intangible (Customer

/ Investmen

t)

Expedite (Emergenc

y)

Increase Revenue

Protect Revenue

Reduce Cost Avoid Cost

Exercise (30 minutes)

• Choose sample work in your backlogo Represent ideas at whatever granularity you are managing them (eg: Sagas,

Epics, Features)o Features tend to be the easiest to work with going forward

• Estimate Lead Time & Delay Time: o Starting with the highest priority item, estimate the time it will take to

deliver the work to market in people monthso Now estimate the time it would take if there was no delay in getting the

work done, in people monthso Identify sources of delay to get a better handle on total delay timeo Write down Lead time and Delay Time for each item

• Evaluate Idea and assign Value Type and Urgency Profile

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CD3 Score

Cost of

DelayDuratio

n=


Cost of Delay and CD 3 Exercise (30 minutes)


Lead Time, Value Type & Urgency Profile Exercise (30 minutes)


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Cost of Delay puts a price tag on time, making it explicit how delaying a release interferes with the realization of value

• Feature or Epic level• Decay of Value / Time • Opportunity Cost / Month (often in $$$)• Slope can be used to display varying COD over

time• Different Slopes -> Different Urgency Profile• Achieve resiliency by balancing work across

Urgency Profiles

$10,000 / Month

Expedite Class

Standard Class

Intangible Class

Fixed Date Class

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Looking at Cost Of Delay helps us understand how to make decisions based on value, rather than effort

Week 1 2 3 4 5 6 7 8 9 10

11

12

13

14

15

16

17

Value AddRisk

ReductionWaiting

Opportunity

10 Weeks waiting

3 Weeks waiting

Design(24 hrs)

Dev & Test(160 hrs)

Go-Live

We have identified the Customer Travel Abroad Feature with the cost of delay being $187,500 per week ($750,000 per month). The value stream below illustrates the progression of the Epic through an organization’s system of work:

How much did queuing, or waiting time cost this organization?

The 10 weeks that this opportunity spent waiting in various queues cost the organization $1,875,000 in lost revenues

5 Weeks waiting

2 Weeks waiting

Inspired by http://blackswanfarming.com

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• High and immediate impact to business• Major lost opportunity if not immediately addressedOur customers privacy is exposed until we make this fix

• Shallow but immediate impact to business• Incremental revenue or Cost avoidanceWe will get more paying customers if they can subscribe online

• No / low immediate impact to business• New / improved capability Once we have the ability to deliver application features using local people, we will have the autonomy we need to deliver at market speed

• Medium or High impact to business• Of no value past a certain dateOur Christmas Marketing Campaign had better be done before Christmas

Expedite Class

Standard Class

Intangible Class

Fixed Date Class

Allocating work across Urgency Profiles clarifies the risk inherent in not doing the work

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Expediters have high and immediate impact to business

Typical Lead Time

Expedite Class

High and immediate impact to businessBreak-fix type of work that needs immediate

attentionAvoiding making the NewsExtreme political fall out

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Typical Lead Time

Fixed Date Class

Fixed Date items drop dramatically in value after a certain date

High and immediate impact to businessBreak-fix type of work that needs immediate

attentionAvoiding making the NewsExtreme political fall out

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Standard Class

Typical Lead Time

Standard Class items provide incrementally more value over time

Shallow but immediate impact to businessIncremental revenueCost avoidanceRisk Reduction

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Typical Lead Time

Intangible Items do not have a cost of delay directly associated with them, delivery allow the business to offer new capabilities and services

No / low immediate impact to business Investment required to build new capability

and servicesNew or enhanced ways to deliver value

Investment (Intangible

Class)

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Turn estimating value into a safe team exercise by making assumptions explicit

• Convert your uncertainties into questions• Do some quick research, and document your assumptions• Try to invalidate those assumptions quickly, include the entire Team,

members from the Porfolio, across TheBusiness • Encourage dialogue and dissent, but time-box it!

The process of surfacing our assumptions about value are more useful than the numbers we come up with!

Build a Model of value based on your assumptionsSAMPLE MODELS:

• Increase RevenueMarket Size X Transaction Value X % Likelihood X Transaction volume

• Protect Revenue Likelihood of threat X * # events per month X # cost of events

• Reduce CostCost reduction / event X #events X %likelihood of benefit

• Avoid CostCost avoidance / event X #events

Reach

Frequency

Likelihood

Unit ValueInspired by http://blackswanfarming.com

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Showing our example, with COD and underlying assumptions



• Customers travel outside of Canada and use our branded card while travelling.

• We flag it as suspicious behavior and block the card.• The customer calls in to reactivate the card, which is frustrating for

customers and adds to our call volume.• If customers could tell us about travel plans via the website, we

could reduce call volume and have happier customers.




Assumption Factor (with unit) Confidence# of customers travelling abroad each month (based on 2.5 M overnight trips per year (Stats Can 2010) x 20% are Cap One users)

500,000 People/month Strong

Likelihood that card is flagged/blocked (based on ?) 30% Strong

Average time wasted when customers calls in to get card reactivated (15min)

0.25 hour Reasonable

Hourly rate for call center rep $50 $/hour Strong

Percentage of customers we think will use web travel notification system (SWAG)

40% Uncertain


COST OF DELAY (per months)= $750 000 CD3 =


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3 Things to Remember: Estimating Cost of Delay

1. Looking at Cost Of Delay helps us understand how to make decisions based on value, rather than effort by making it explicit how delaying a release interferes with the realization of value.

2. An organization can achieve resiliency by balancing work across Urgency Profiles

3. Make assumptions explicit. The process of surfacing our assumptions about value are more useful than the numbers we come up with!

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CD3 Score

Cost of

DelayDuratio

n=

Agenda




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Estimating the Economic Impact of Delay for scheduling decisions using CD3 Cost of Delay Divided by Duration

Business value of the feature or Epic

Value lost over time

•maximise the value delivered in a given time period• relatively fixed or “scarce” resources

(people!)•Max total ROI by minimising the

total Delay Cost for a set of options• encouraging the breakdown of work

into smaller batches!

Cost of Delay

Duration

How value decays over time

The lead time to deliver to market


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With FIFO we work on items for customers in the order we receive the features

Week A B C Opportunity Cost

Revenue

1 $0 $0 $0 $10 $0

2 $0 $0 $0 $10 $0

3 $0 $0 $0 $10 $0

4 $0 $0 $0 $10 $0

5 $0 $0 $0 $10 $0

6 $1 $0 $0 $9 $1

7 $1 $4 $0 $5 $5

8 $1 $4 $0 $5 $5

9 $1 $4 $2 $0 $10

Total $69 $21

Feature Lead Time Cost Of Delay CD3

A 5 $1 0.2

B 1 $4 4

C 2 $5 2.5

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CD3 provides focus on getting to value earlier

Week A B C Opportunity Cost

Revenue

1 $0 $0 $0 $10 $0

2 $0 $4 $0 $6 $4

3 $0 $4 $0 $6 $4

4 $0 $4 $5 $1 $9

5 $0 $4 $5 $1 $9

6 $0 $4 $5 $1 $9

7 $0 $4 $5 $1 $9

8 $0 $4 $5 $1 $9

9 $1 $4 $5 $0 $10

Total $27 $63

Feature Lead Time Cost Of Delay CD3

A 5 $1 0.2

B 1 $4 4

C 2 $5 2.5

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CD3 provides focus on getting to value earlier

1 2 3 4 5 6 7 8 90

10

20

30

40

50

60

70

FIFOCD3

Value

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CD3 provides focus on getting to value earlier & reducing opportunity costs

1 2 3 4 5 6 7 8 90

10

20

30

40

50

60

70

80

FIFOCD3

Opportunity Cost

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CD3 provides an economic incentive to increase organizational agility

• Rank order a backlog by the highest COD and lowest CD3 score

• Analyze the items with largest discrepancies where a lack of agility is interfering with delivering the most value

• Perform root cause analysis across the Team and Porfolio boundaries to improve the CD3 score where we believe it matters most!

Epic Lead Time Cost of Delay CD3

Epic 1 10 months $120,000 / month 12,000



When we have a Variance between CD3 and COD… We should ask WHYSample Delay Themes:• Different Teams & Porfolios have different priorities on their backlog• Too much Work in Progress• Outcomes are too Big – Need to Thin Slice!• Teams are specialized, lots of hand-offs required• Rework• Over Specified

Plan

ImproveLearn

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Showing our example, with COD and underlying assumptions



• Customers travel outside of Canada and use our branded card while travelling. • We flag it as suspicious behavior and block the card.• The customer calls in to reactivate the card, which is frustrating for

customers and adds to our call volume.• If customers could tell us about travel plans via the website, we

could reduce call volume and have happier customers.

VALUE TYPE (choose one) URGENCY PROFILE (choose one)Increase Revenue - Protect Revenue

- Reduce Cost - Avoid CostExpedite - Fixed

– Standard - IntangibleVALUE MODEL

Assumption Factor (with unit) Confidence# of customers travelling abroad each month (based on 2.5 M overnight trips per year (Stats Can 2010) x 20% are Cap One users)

500,000 People/month Strong

Likelihood that card is flagged/blocked (based on ?) 30% Strong

Average time wasted when customers calls in to get card reactivated (15min)

0.25 hour Reasonable

Hourly rate for call center rep $50 $/hour Strong

Percentage of customers we think will use web travel notification system (SWAG)

40% Uncertain


COST OF DELAY (per months)= $750 000 CD3 = $250,000


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3 Things to Remember: Ranking with CD3

1. Step 1: Rank order a backlog by the highest COD and lowest CD3 score

2. Step 2: Analyze the items with largest discrepancies where a lack of agility is interfering with delivering the most value

3. Step 3: Perform root cause analysis across the Team and Porfolio boundaries to improve the CD3 score where we believe it matters most!

Summary: CD3 provides an economic incentive to increase organizational agility, and provides focus on getting to value earlier while reducing opportunity costs. It’s key to perform root cause analysis when CD3 scores do not reflect what we expect

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CD3 Score

Cost of

DelayDuratio

n=

Agenda




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Exercise (30 Mins) Select the highest valued item through quick, but thoughtful dialogue that make assumptions behind value explicit

Describe the opportunity statement and review the value type and urgency profile of a feature in your backlog (break an Epic into Features if necessary)

1

Break the group into teams of two to three and spend 15-20 minutes creating a quick value model based on quick research and existing knowledge. • Express your estimate in $ per month (Cost of Delay) • Make assumptions explicit!

2

Select a COD estimate, and prioritize next to other items in that have been estimated, rank by the highest valued, smallest lead time job

4

3

• Creates focus on value for money• Enables better trade-off decisions• Changes the focus of the conversation

• Revenue > Market Size x Transaction Value x % Likelihood x % Cost• Risk > Likelihood of event x # events x # cost of

events• Investment > Incremental revenue / cost

avoidance per activity * likelihood * #events

Place all estimates beside each other side by side, and have the group discuss, starting with the highest and lowest. Group discusses and comes to a consensus


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CD3 Score

Cost of

DelayDuratio

n=

Agenda




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What’s Next?

Working at the Team and Portfolio level…

• Examine the backlog and break up into features

• Put a cadence in place to estimate lead time, delay time, COD, and CD3 for each item at both the Team and Porfolio level that are in progress or will be started within the next 1–2 months

• Align on what a healthy mix of urgency profiles and value type looks like for your Porfolio

• Work with Teams to prioritize Intent using the COD approach

• Identify where sources of delay are having the biggest impact

• Prioritize Improvement work and place on Team, Portfolio, or Executive Improvement backlogs

estimating value through the lens of cost of delay

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