The cost of a day’s delay – Revisited

by Michael Dalton

Podcast Now Availablecost of a days delay in new product developmentIf speed to market is important to your company, does every one of your new product project teams have a clear project charter and understand the cost of a day’s delay?

You can’t  assume anything here. Ask members from the same project team what the loss in new product cash flow is for every day the project is delayed, and you’ll be surprised to how many different answers you get.  Most will confuse your question with the cost of development.

I frequently tell the story about a company I was working with that was struggling with a project that had gone on for far too long. All the while, a competitor’s new product had continued to eat away at their position and take market share. Finally, after this had gone on for months, the general manager threw up his hands in desperation and told the team, “Not having this product on the market is costing us 50 thousand dollars in lost profits each and every day!”

When faced with the fact that 3 months of trying to perfect the design had cost the company 1.5 million dollars in lost profit, the engineering manager was stunned. They would have launched a version months earlier had she known.

When you think about how many different things the development staff in most companies are working on, it’s easy to rationalize how something so important is so often overlooked.  But there’s more to it than just that.

There’s a fundamental failure to plan at work here. We have so many things going on that project planning has deteriorated to milestones and checklists. While important, these are no substitute for a solid project plan.

And good planning starts with a clear and concise project charter. A brief agreement of sorts that identifies and communicates:

  • The cost of a day’s delay – even if there isn’t a clear and present competitive danger or a negotiated penalty
  • Context for why we are doing the project in the first place – e.g. the benefits we expect 
  • Clear goals for what the new product team needs to accomplish
  • When  the goals need to be accomplished
  • Requirements that define the product scope
  • Resource and budget needs
  • Key internal & external stakeholders, including charter customers & regulatory agencies, that own the requirements
  • How any changes will be communicated (and who will fund them)
  • Risks that the plan needs to address

Think of the project charter as the blueprint for an apartment building that you want to have built. It doesn’t detail all of the tasks, but it fully describes what is required to make the property habitable.  And the cost of a day’s delay is the rental income you can expect as soon as you have the occupancy permit. If the contractor shows you a new material that will reduce exterior maintenance costs by 10%, but delay occupancy by 2 months, you now have the information to determine whether or not the trade-off is worth it.

The flipside is the benefit of an early start. In some cases, like cost savings projects, an early finish means more benefit.  In other cases, like new model year updates, the launch date is fixed and an early finish is of limited value.

 

 

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