When discussing value, determining how to measure that value is critical. As I write my second book on “The Business Value of Software," I find myself frequently coming back to two simple techniques that help organizations measure the business value of their software development projects: Cost of Delay (CoD) and Weighted Shortest Job First (WSJF).
CoD is the hourly, daily, or monthly cost associated with NOT starting a project. When a project is delayed, there is waste (i.e. wait times, inventory costs, opportunity costs) and this waste can negatively impact the bottom line.
Cost of Delay =
User or Business Value + Time Criticality + Risk Reduction or Opportunity Enablement Value
WSJF is another metric that prioritizes those projects by putting the project with the highest WSJF at the top of the list. It is calculated by dividing the CoD by the duration of the project.
These two techniques are extremely helpful in prioritizing software development initiatives based on economics. They enable an organization to prevent the frequent starting and stopping of projects that are extremely common in the software development world and allow for a continuous flow of product development based on metrics that drive business value.
Donald Reinertsen, the author of “The Principles of Product Development Flow: Second Generation Lean Product Development” has said “If you only quantify one thing, quantify cost of delay." I whole-heartedly agree with Reinertsen, and I also encourage organizations to quantify WSJF. By measuring CoD, software development organizations will eliminate overhead associated with delays, streamline operations, and ultimately, produce more business value. By adding WSJF into the equation, they’ll be able to prioritize their projects such that they’re continuously delivering the greatest value to their business units.
I’m always interested in how software development organizations are using these two techniques. Please share the successes you’ve realized when utilizing CoD and/or WSJF.