Estimating value through the lens of cost of delay

1. agilebydesign.com
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Estimating Value
through the Lens Of
Cost Of Delay

2. agilebydesign.com
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Before we begin, a shift in mindset around how we think about delivering value

3. agilebydesign.com
@agile_bydesign
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

4. agilebydesign.com
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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
Delay
Duration=
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 DESCRIPTION
VALUE
(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 Cost
Expedite - Fixed –
Standard - Intangible
VALUE 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)=

6. agilebydesign.com
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Estimating Lead and Delay Time
(15 minutes)
Estimating Cost Of Delay
(15 minutes)
Ranking with CD3
(10 Minutes)
CD3
Score
Cost of
Delay
Duration=
Review and Next Steps (5 minutes)
EXERCISE: Cost of Delay and CD3 (30 minutes)
Agenda
EXERCISE: Lead Time, Value Type & Urgency Profile (30 minutes)
Identifying Value and Urgency
(15 minutes)

7. agilebydesign.com
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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 Time
Business
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
FEATURE PROBLEM/IDEA/OPPORTUNITY DESCRIPTION
VALUE
(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 Cost
Expedite - Fixed –
Standard - Intangible
VALUE 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)= 3 DELAY TIME (months)= 2

11. agilebydesign.com
@agile_bydesign
Estimating Lead and Delay Time
(15 minutes)
Estimating Cost Of Delay
(15 minutes)
Ranking with CD3
(10 Minutes)
CD3
Score
Cost of
Delay
Duration=
Review and Next Steps (5 minutes)
Identifying Value and Urgency
(15 minutes)
Agenda
EXERCISE: Cost of Delay and CD3 (30 minutes)
EXERCISE: Lead Time, Value Type & Urgency Profile (30 minutes)

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13. agilebydesign.com
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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
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 addressed
Our customers privacy is exposed until we make this fix
• Shallow but immediate impact to business
• Incremental revenue or Cost avoidance
We 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 date
Our 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

16. agilebydesign.com
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Our example continued by showing Value Type and Urgency Profile
FEATURE PROBLEM/IDEA/OPPORTUNITY DESCRIPTION
VALUE
(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 Cost
Expedite - Fixed –
Standard - Intangible
VALUE 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)= 3 DELAY TIME (months)= 2

17. agilebydesign.com
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Exercise (30 minutes)
• Choose sample work in your backlog
o 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 months
o Now estimate the time it would take if there was no delay in getting the
work done, in people months
o Identify sources of delay to get a better handle on total delay time
o Write down Lead time and Delay Time for each item
• Evaluate Idea and assign Value Type and Urgency Profile

18. agilebydesign.com
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Estimating Lead and Delay Time
(15 minutes)
Ranking with CD3
(10 Minutes)
CD3
Score
Cost of
Delay
Duration=
Review and Next Steps (5 minutes)
Cost of Delay and CD 3 Exercise (30 minutes)
Estimating Cost Of Delay
(15 minutes)
Lead Time, Value Type & Urgency Profile Exercise (30 minutes)
Identifying Value and Urgency
(15 minutes)

19. agilebydesign.com
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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

20. agilebydesign.com
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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 Add
Risk Reduction
Waiting
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 addressed
Our customers privacy is exposed until we make this fix
• Shallow but immediate impact to business
• Incremental revenue or Cost avoidance
We 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 date
Our 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

22. agilebydesign.com
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Expediters have high and immediate impact to business
Typical Lead
Time
Expedite Class
High and immediate impact to business
Break-fix type of work that needs immediate
attention
Avoiding making the News
Extreme 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 business
Break-fix type of work that needs immediate
attention
Avoiding making the News
Extreme 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 business
Incremental revenue
Cost avoidance
Risk Reduction

25. agilebydesign.com
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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 services
New or enhanced ways to deliver value
Intangible Class

26. agilebydesign.com
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Input
Queue
(8)
Test
(3) Done
Development
(4)
Analysis
(3)
Delivery
(2)
Dev
Ready
(3)IP Done IP Done
Test
Ready
(3) IP Done
Delivery
Ready
(3) IP Done
(1)
(4)
(10)
(2)
Classes of Service can be modeled on the Kanban board using different colored post-
it notes

27. agilebydesign.com
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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 The Business
• 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 assumptions
SAMPLE MODELS:
• Increase Revenue
Market Size X Transaction Value X % Likelihood X Transaction volume
• Protect Revenue
Likelihood of threat X * # events per month X # cost of events
• Reduce Cost
Cost reduction / event X #events X %likelihood of benefit
• Avoid Cost
Cost avoidance / event X #events
Reach
Frequency
Likelihood
Unit Value
Inspired by http://blackswanfarming.com

28. agilebydesign.com
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Showing our example, with COD and underlying assumptions
FEATURE PROBLEM/IDEA/OPPORTUNITY DESCRIPTION
VALUE
(t-shirt sizing)
Create functionality so that we notifies customers
when travelling internationally to prevent card getting
blocked
• 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 Cost
Expedite - Fixed –
Standard - Intangible
VALUE 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 = # customers affected * likelihood of event * call duration * hourly rate * %customers who would use solution
COST OF DELAY (per months)= $750 000 CD3 =
LEAD TIME (months)= 3 DELAY TIME (months)= 2

29. agilebydesign.com
@agile_bydesign
Estimating Lead and Delay Time
(15 minutes)
Review and Next Steps (5 minutes)
Estimating Cost Of Delay
(15 minutes)
Ranking with CD3
(10 Minutes)
CD3
Score
Cost of
Delay
Duration=
Agenda
EXERCISE: Cost of Delay and CD3 (30 minutes)
EXERCISE: Lead Time, Value Type & Urgency Profile (30 minutes)
Identifying Value and Urgency
(15 minutes)

30. agilebydesign.com
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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
Inspired by http://blackswanfarming.com

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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
0
10
20
30
40
50
60
70
1 2 3 4 5 6 7 8 9
FIFO
CD3
Value

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CD3 provides focus on getting to value earlier & reducing opportunity costs
0
10
20
30
40
50
60
70
80
1 2 3 4 5 6 7 8 9
FIFO
CD3
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
Epic 2 2 months $50,000 / month 25,000
Epic 3 5 months $110,000 / month 22,000
When we have a Variance between CD3 and COD… We should ask WHY
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
Plan
ImproveLearn

36. agilebydesign.com
@agile_bydesign
Showing our example, with COD and underlying assumptions
FEATURE PROBLEM/IDEA/OPPORTUNITY DESCRIPTION
VALUE
(t-shirt sizing)
Create functionality so that TheBusiness notifies
customers when travelling internationally to prevent
card getting blocked
• 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 Cost
Expedite - Fixed
– Standard - Intangible
VALUE 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 = # customers affected * likelihood of event * call duration * hourly rate * %customers who would use solution
COST OF DELAY (per months)= $750 000 CD3 = $250,000
LEAD TIME (months)= 3 DELAY TIME (months)= 2

37. agilebydesign.com
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Estimating Lead and Delay Time
(15 minutes)
Review and Next Steps (5 minutes)
Estimating Cost Of Delay
(15 minutes)
Ranking with CD3
(10 Minutes)
CD3
Score
Cost of
Delay
Duration=
Agenda
EXERCISE: Cost of Delay and CD3 (30 minutes)
EXERCISE: Lead Time, Value Type & Urgency Profile (30 minutes)
Identifying Value and Urgency
(15 minutes)

38. agilebydesign.com
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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
Inspired by http://blackswanfarming.com

39. agilebydesign.com
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Estimating Lead and Delay Time
(15 minutes)
Review and Next Steps (5 minutes)
Estimating Cost Of Delay
(15 minutes)
Ranking with CD3
(10 Minutes)
CD3
Score
Cost of
Delay
Duration=
Agenda
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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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