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Simple Metrics to Measure Value – CoD and WSJF

Cost of DelayWhen discussing value, determining how to measure that value is critical. As I write my second book on “The Business Value of Software," I find myself frequently coming back to two simple techniques that help organizations measure the business value of their software development projects: Cost of Delay (CoD) and Weighted Shortest Job First (WSJF).

CoD is the hourly, daily, or monthly cost associated with NOT starting a project. When a project is delayed, there is waste (i.e. wait times, inventory costs, opportunity costs) and this waste can negatively impact the bottom line. 

Cost of Delay =
User or Business Value + Time Criticality + Risk Reduction or Opportunity Enablement Value

WSJF is another metric that prioritizes those projects by putting the project with the highest WSJF at the top of the list. It is calculated by dividing the CoD by the duration of the project. 

These two techniques are extremely helpful in prioritizing software development initiatives based on economics. They enable an organization to prevent the frequent starting and stopping of projects that are extremely common in the software development world and allow for a continuous flow of product development based on metrics that drive business value. 

Donald Reinertsen, the author of “The Principles of Product Development Flow: Second Generation Lean Product Development” has said “If you only quantify one thing, quantify cost of delay." I whole-heartedly agree with Reinertsen, and I also encourage organizations to quantify WSJF. By measuring CoD, software development organizations will eliminate overhead associated with delays, streamline operations, and ultimately, produce more business value. By adding WSJF into the equation, they’ll be able to prioritize their projects such that they’re continuously delivering the greatest value to their business units.

I’m always interested in how software development organizations are using these two techniques. Please share the successes you’ve realized when utilizing CoD and/or WSJF.

Mike Harris

Written by Michael D. Harris at 05:00
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Defining the Cost of Delay

As many of you know, the “Value Visualization of IT” is a topic I am passionate about. I’ve written numerous articles, blog posts and even a book on this subject, as well as spoken about it at many conferences and events. I believe that understanding the value of a software development project is so critical to its success that I created a concept known as the Value Visualization Framework (VVF). In September, I walked through the 5-step VVF process, which provides a clear directive to discuss, define, measure, and prioritize software development initiatives based on their ability to deliver on the value expectations.

After completing the first three steps of the process: defining the units of value delivery, the value of the project in specific units and the size of the initiative, the next step is defining the “Cost of Delay” of the implementation challenge, including level of complexity, duration, etc. This step is crucial in prioritizing work packets or projects or stories. Essentially, we should always prioritize projects with the highest cost of delay. However, identifying the cost of delay for a particular story is neither intuitively obvious nor easy. The following are three potential approaches to defining the cost of delay:

1st Approach: Explicit Cost

  1. Penalty if completion date is missed (e.g. $2,500 fine if not completed by Day 15)
  2. Missed opportunity (e.g. the loss of an incentive – 30 new subscribers will sign up if delivered by Day 17 or not!)

 2nd Approach: Cost if Stories in Software Development are Too Long

 The following table shows examples of costs of delay for excessive times in software development

Cost of Delay

3rd Approach: Relative Cost of Delay of One Story Against Another

This approach can allow cost of delay to be assigned by an informed and representative team with relatively little data. The process is similar to story estimation in Agile using planning poker. Usually a limited set of numbers (Fibonacci or modified Fibonacci e.g. Cohn Scale - Popularized by Mike Cohn for use in Story Points: 0, 0.5, 1, 2, 3, 5, 8, 13, 20, 40, 100, ?) are used and participants must choose from this and set the relative cost of delay for each story against the other stories, as in the figure below.

Cost of Delay for Stories

The fifth and final step of the VVF process is quantifying the economic value once deployed. Watch for an upcoming post discussing this step.

Michael D. Harris
DCG President


Written by Michael D. Harris at 05:00
Categories :

"It's frustrating that there are so many failed software projects when I know from personal experience that it's possible to do so much better - and we can help." 
- Mike Harris, DCG Owner

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