I read about calculating cost of delay to make product development decisions. I’ve never used it or see it used where I’ve worked. Does anyone here have any experience with it? How has it worked out?
I’d be interested in knowing that, too. I’d be surprised if it’s all that significant, though, especially in cases where the client organization is already selling a product. It probably is a lot more costly to ram forward with half baked ideas and no period for reflection.
I’m more interested in using it to make judgements on new feature additions. For example, we can develop VR goggles with 480p in 12 months or 720p in 18 months or we can develop 480p in 12 months and 720 p in 24 months. Which of the three scenarios do I go with?
Actually it tends to be massive in CE. There are several factors here:
Selling season. Many products have a natural selling season. Gaming consoles and accessories for example. 90% of sales are in Q4, and the big box stores have hard resets, so if you miss the reset by a week, you won’t get placed until February, meaning you lost 90% of sales, and you never get it back. It is not like next year you will sell %180 in Q4.
Load ins. When a product rolls out there is a load in sale. So for example if you get placement in Target or something like that, and they buy 3 units of 3 colors to put on the shelf of 1,800 stores and then stock 3 more in back or each color, that is an opening order of 32,400. The business has to plan for this, so there is pre-selling, budget associated with purchasing and distributing inventory. Sales and customer service training. It is basically like a snake eating a pig as that big lump of work moves through the organization until launch. Delaying can crush a business who maybe did not plan to have a reserve of capital to sustain the pig in place while you get a finish just right.
Opportunity costs and the domino effect there of. When the organization plans its budget for a year, it typically plans for launches, revenue associated with load ins, as well as the resources needed to design, develop, manufacture, and launch said products on the roadmap. Every hour resources go over budget is an hour stolen from the next project meaning you either have to short change the next product, or delay that one as well, and you can quickly get into a position where everything you deliver is late and the retailer can’t trust you to make load ins. You don’t want to be in that spot.
All of these things are usually pretty quantifiable by an analyst in finance who I’m sure you could partner with. Of course you have to balance out the equation with the pros of a delay. Is there a feature that is going to increase sales that you need more time on? Is something wrong which will result in returns or bad ratings if the product is not delayed? Is there an aesthetic defect on the line that is going to prohibit sales (part fit, discoloration, inconsistencies … )? These things have costs associated with them as well.
In direct to consumer or B to C I would tend to disagree though it can be a risk, Yo makes great points on this.
However, in business to business, or B to B this can very much be the case and presents greater risk. Some B to B is also seasonal to an extent, some industries also have cyclical selling seasons.