Cost-of-Delay
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What is the cost of delay? It grew out of our best-practice research, where we observed successful new product development teams using various methods to quantify the cost of schedule delay.
Let’s take the classic time-to-market problem. There is a development time frame and then a market window when the technology has competitive viability in the marketplace.
Development proceeds ahead with this time-frame in mind. The goal is to hit the window at the beginning of the potential sales cycle. The further into the window you get, the smaller the sales volume is... and average selling price and margin usually drop as well.
Then, the project is delayed, yet the market window is fixed. At some point, as you push pass through the window in time, the sales life for your product is diminished. In technology sectors, me-too products have to compete on price and volume as the margins are typically low, due to the low ASP. People that hit the front-end of the market window enjoy the highest ASP and margins.
Trade-offs...
fastROI models this cycle. fastROI permits development teams to understand their cost-of-delay in other words, the financial impact of schedule delay. fastROI enables teams to make trade-offs between critical business plan variables in order to optimize the schedule.
These include ASP, COGS, R&D Expense, Sales, and Schedule.
Mindset...
Engaging the development team in economic modeling throughout the product creation cycle is critical to getting “engineering-focused” teams to operate more like a business where they are able to connect the value of time with money. It’s a business mindset that really distinguished the best practice teams from the rest.