Illustrating cost of delay

In a previous post, I talk about how part the role of the Product Manager is to optimize Return-on-Investment, by touching on the concept of Cost of Delay.

In this post, I'll dive a bit deeper and illustrate the impact that timing and sequencing of initiatives has in terms of value delivery.

Example#

Consider a mobile application for the sales department of your company, and that app is specifically meant to be used at a conference happening later in the year.
The expectations for the conference is to reach a lot of potential new users who could turn into commercial leads.

Now imagine that the team working on this application can't make it to that date for some reason. This turns into a missed opportunity, and the time elapsed after the conference date is considered as unrealized value.
That elapsed time with unrealized value is a key component of the concept of Cost of Delay.

Theoretical illustration#

To illustrate this at a larger scale, let's imagine two scenarios:

1. The team delivers large chunks of valuable functionality occasionally
2. The team delivers smallers valuable functionalities a lot more frequently.

Let's plot graphs showing value delivery over time, for both of these scenarios to compare them.
I'll represent value as "points" which you can swap with anything representing value in your context (money, active users, leads...).

Scenario 1: occasional value delivery in large chunks#

This graph projects value delivered over time in the first scenario, reaching an ultimate value of 5000 theoretical value points.

This usually happens when the team goes all-in on single, high-effort, initiative which can't be easily split into smaller chunks.

Scenario 2: frequent value delivery in small increments#

In this scenario, I considered the team reaching an ultimate value of around 4300 value points, but releasing a lot more frequently.

Since value accrues over time, we can make some napkin calculations to show that the second scenario will generate about 345k more value points by the end of the year:

These 345k represent the cost that delaying value delivery has for the company, even if the absolute value amount is lower.

This illustration naturally takes a lot of shortcuts, disregarding the time it takes for value to be actually realized past a release, which depends on how effective your go-to-market strategy is. But I believe it to be good enough to make the point.

Conclusion#

In turn, optimizing ROI means balancing where your team should invest its time based on its current understanding of the situation.
This requires to pay attention to how your sequencing will change how frequently you expect to be delivering value to users, as this has a drastic impact on how much value gets delivered overall.

To learn more about Cost of Delay, consider reading Don Reinertsen's book called "The principles of Product Development FLOW"

Happy optimization!