"Cost of Delay" (CoD) is an essential concept in the Scaled Agile Framework (SAFe) and is used in prioritization techniques like Weighted Shortest Job First (WSJF). Cost of Delay is a measure of the impact of time on the outcomes we could achieve.
However, calculating Cost of Delay can be challenging as it is often a mix of tangible and intangible factors, and can be highly specific to your organization and product. There isn't a one-size-fits-all formula for calculating CoD.
Here is a generic approach you could consider:
Identify the impacts: Start by identifying all the potential impacts of delaying the work. This could include lost sales, reduced customer satisfaction, penalty costs, opportunity costs, etc. Remember, these impacts are not one-time costs but continue for the duration of the delay.
Estimate the value of the impacts: For each impact, estimate its value in monetary terms. This might involve estimating the number of lost sales and the average profit per sale, for example.
Sum the impacts: Add up the estimated values of all the impacts to get the total Cost of Delay per unit of time (typically per week or per month).
Apply sensitivity analysis: Since these are estimates, consider how sensitive your calculation is to changes in the estimates. This could lead you to focus on getting better data for the most influential estimates.
Remember, this is just a rough guide. Cost of Delay can depend on a lot of different factors and calculating it can involve a good deal of judgment and estimation. Also, the concept of Cost of Delay is often used more as a way of thinking about priorities and trade-offs than as a precise calculation.
Ultimately, the goal of calculating Cost of Delay is to help make better decisions about what work should be done and when. It's not just about the numbers but about understanding the value of different work items and the impact of delays.