Product Backlog Tools – How to Prioritise Using the Cost of Delay

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Have you wondered how to arrange a to-do list in the correct order? Probably not. There’s nothing to learn, right? Clearly, prioritising what to do next shouldn’t be hard. But don’t underestimate how costly a casual attitude to this can be. Most of the time prioritisation is done on gut feel, but a sound mental model of the economics will speed up planning, help resolve differences of opinion and bring in money sooner.

We use an input queue, often called a backlog, to pull work items from. The backlog is nothing more than an ordered list of things to do, with the next most important thing at the top.

Given a list of work, most people go about prioritisation by choosing what’s important to them or by identifying what’s important to users based on gut feel or customer feedback. Gut feel or feedback is fine but it’s not the whole story and comparing the right criteria can make the ordering easier and more profitable.

A cleaner, more measurable approach is to focus on the opportunity cost. The opportunity cost is fancy way to say, what will it cost not to do something. Another phrase often used is the Cost of Delay or COD. A commercially clear way to compare two backlog items is to ask, “What will it cost to delay doing this item compared to the item below it”. By placing the more expensive of the two above the other, then moving down the list a Cost of Delay ranking will emerge.

The Cost of Delay could take the form of lost sales or subscribers, in other words market share. Or, in the case of back office process automation, the perceived savings in time and labour not kicking in. Putting exact financial figures to these isn’t easy and is generally unnecessary. Reducing the comparison to the single cost variable and using whatever past data is available to make a judgement, is normally enough. There are some interesting techniques and collaboration games that can improve speed and objectivity still further; but that will be covered in a future article.

Tracing everything back to money may seem cold and ruthless, but in the world of commercial software it is reality. Even cool things like beautiful, contemporary design benefit from this Cost of Delay comparison. Users tend to place greater trust in pleasing and nice to use websites and this trust factor will influence sales and market share.

Sometimes the order of work seems inevitable and based on perceived feature dependencies. For example, it may seem essential to for users of an on-line web service to be able to create an account profile before doing anything. With care, creativity and engineering jujitsu this could be reversed allowing other revenue generating features to be released earlier. If you’re sceptical checkout how Doodle handle no user accounts.

Ultimately breaking functionality down into mini features that may be delivered early and crafting the build schedule with an eye on the Cost of Delay is the mark of a canny and experienced product development team.

Author: Royd Brayshay

I work with software development teams needing greater business effectiveness. I give lean and agile leadership advice plus coaching and training in Scrum, Kanban and XP practices. Dramatic improvements in productivity and predictability can be found in most teams. I also write code, design products and perform technical leadership.