Flow principle E3 states—"If you only quantify one thing, quantify the cost of delay."
Cost of delay (COD) determines the financial impact on the company if it releases a product on the market earlier or later. When a product arrives on the market X months earlier, revenues also roll in X months earlier.
The figure below shows the economic impact of a prioritization sequence. Considering each feature takes 3 weeks to finish and generates $10,000 once released, the second scenario generates $60,000 ($$40,000 from A and $20,000 from B) for the company.
Prioritization sequence has an economic impact.
COD is the more eye-opening measurement that a company can infer because if you can't quantify the cost of a queue on the critical path, you can't quantify the benefit of reducing it.
You can evaluate the following costs using COD:
- the cost of queues
- the value of excess capacity
- the value of variability reduction
- the benefit of smaller batch sizes.