Preston Smith's Corner

Are there situations where cost-of-delay calculations don’t apply?

January 1999 Quick Tip

(In the last Quick Tip, we showed how to calculate the cost of delay — the profit lost from a one-week slippage in a product development project.)

Some managers do resist these calculations, saying that the market for their products is so uncertain that they cannot estimate what would happen to sales if product introduction slips. They are correct for a very few bleeding-edge products where the market is essentially unknown. These calculations also break down for government projects for which there is no profit motive. But for 90% of product development projects, such statements belie a lack of marketing homework.

Another group says that they could never get marketing and engineering to agree on the assumptions underlying such calculations. True enough. However, this problem is actually a blessing. Doing the calculations requires engineering and marketing to grapple with the market conditions driving urgency. Until these two groups reach a common understanding on the market drivers, engineering is unlikely to really believe in the urgency, and their behavior will reflect this ambivalence.

Yet a third group says that management would not believe or act on such numbers even if they had them. True again, and this is why we put great effort into education when we work with clients to implement a cost-of-delay system. We show the finance people why they need to keep these tools simple. We coach senior management in working with development teams so the teams can make better, faster project decisions — decisions that will not be overruled by management later. You can do the same; just don’t assume that this education will happen automatically.

(c) Copyright 2013 Preston G. Smith. All Rights Reserved.

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