If you're like my clients (or me!), you have too much work to do. (I'm beginning to think “too much work” is the norm.)
But how do you decide what to do first, second, and third? And never?
I use Cost of Delay. (I've written about how to see the various Costs of Delay, especially in Diving for Hidden Treasures.)
But before I calculate anything, I start with the Zeroth question.
Ask the Zeroth Question
The Zeroth question is this:
Is this work still valuable?
Sometimes, work that was valuable last year is no longer valuable this year. The longer your plans (the higher the WIP), the more likely that old(er) project is less valuable.
Worse, the longer it takes to deliver a project, the less and less valuable that project becomes. (That will become clear in the calculations, below and in the next post.)
So before you calculate anything, ask that “still valuable” question. If the work is no longer valuable, stop doing it. Instead, choose something else that will get you revenue faster. (I'm using revenue, as a substitute for value. I'll talk about non-commercial organizations in the next post in this series.)
For all the work you have remaining, you can calculate the various costs of delay to see the most valuable work.
Clarify the Various Costs
While I thought the original image was fine, some of my clients wanted more detail describing each cost. Here's an image that itemizes the various costs:
The explanation of all four costs:
- Cost 1: The costs of continuing to pay people until the introduction even though there is no new revenue.
- Cost 2: Delays create a reduced number of sales at the Introduction. How much? I don't know. The shorter the delay, the less reduction. My rule of thumb for commercial products is at least 10% for every month of delay. That's based on my experience, which might not be yours.
- Cost 3: Reduced revenue over the entire product lifetime. (That's the lower of the two sideways-S lines.)
- Cost 4: Earlier EOL (End of Life), so reduced revenue. (That's the earlier end to the lower sideways-S line.)
Remember I said that the longer a project continues, the less value it might have? That's specifically because of Costs 3 and 4. In general, the longer you wait to release the product, the less value it has in the market.
There is one exception to that guideline: If you are first to market and no one else even has a clue about what you're doing. Then, you don't have competition and you can “capture” the entire market as soon as you release.
Now that you know the four costs, you can put orders of magnitude on your organizational costs.
Guess at Your Organizational Costs
Cost 1 is where you have no additional revenue and still need to pay the people. This can cost you a ton of money the longer a project lingers in “not quite done” because you're still paying the people. If you stop paying the people, you can't finish. But if you keep paying—and multitasking—you might be stuck in Sunk Cost Fallacy thinking.
Calculate Cost 1 by adding up the weekly salaries of everyone involved, and multiplying by the number of weeks. That will give you a number that might boggle your mind. More on that in Part 2 of this series.
Cost 2 is the Reduced Sales at Introduction. Some products make a huge splash when they first reach the market. Others take a little longer to find their market fit. The more you expect a big splash, the higher your costs for Cost 2. What is your weekly anticipated sales? Multiply that by the number of weeks delay.
Cost 3: Reduced Maximum Sales for the entire lifetime. (The new Maximum Sales is the lower of the two lines.)
Cost 4: Late products tend to have an earlier EOL (End of Life). That reduces sales and therefore, revenue.
What if you know Cost 1, but have no idea about Costs 2, 3, or 4 because you don't know how long things will take? Welcome to the club. I have used this anonymous approach to clarify those costs.
Ask Questions That the Team Can Answer Anonymously
The project team often has a great idea about when they can finish. It's better if they collaborate, and work as a team. But even if they work alone, they have a pretty good idea about when they can finish. However, if they work alone, their cycle time is likely to be longer. (See Measure Cycle Time, Not Velocity.)
That's okay. Ask each team member to answer these questions anonymously:
- How many projects are you working on?
- If you can work alone with your team, how many more weeks do you think you need before you can release something useful?
- If you need other people or teams to finish your work, explain who they are. Assume you had them, how many weeks do you think you need them?
The first question is about multitasking. If they are, all the costs continue to increase until enough people only work on one project. There's no point in asking the other two questions until the team stops multitasking.
The second question goes to the time until first release, the time to get to Cost 2. That's because most teams have a pretty good idea of how much work still remains.
And if this team needs other people or teams, you have a chance at understanding the time to Cost 2.
Now that you know the various Costs of Delay, you can start to rank the work by value. That's in Part 2, where we bring the known Cost 1 (salary) and use the other costs to rank the work.