How to prioritize initiatives with the cost of delay analysis

You know when you go to a buffet, and you want some of everything, but you can only carry as many plates as you have hands? It’s not all that different from being a product manager sometimes.

You have a whole spread of ideas in front of you, plus your team's and user's needs, and you have to find a way to make room for what matters. Some projects are easy wins (like fixing bugs and broken links), but it can be hard to choose between high-impact initiatives.

This is where a cost of delay analysis can help. In this article, we discuss what a cost of delay analysis is, when it’s most useful, and a simple 3-step process to conduct them yourself. 

What is a cost of delay analysis?

Cost of delay (CoD) analysis is a method product teams use to determine how much revenue is lost by delaying work on valuable ideas and initiatives.

The cost of delay divided by duration (CD3) is a technique that helps product managers prioritize and schedule ideas based on their economic impact.

Essentially, CoD is how much revenue is lost by delaying, and CD3 helps you prioritize ideas and initiatives.

During the analysis, you take a list of ideas and compare them across 2 variables: how long they'll take to complete and how much revenue they'll generate. The results of your analysis help you identify the idea or initiative that is too valuable to put off.

Mohammed Rizwan, current Principal Product Manager at Unobravo and former Director of Product at Contentsquare, shared how he approaches the cost of delay analysis. Riz noted that a CD3 analysis “allows product teams to compare low-hanging fruit to bigger initiatives more fairly.”

The benefits of a CoD analysis

There are 2 main benefits to using CD3 as a product manager:

1. Objectively prioritize your work

Weighing up your ideas can sometimes feel like an ‘apples to oranges’ scenario.

Initiatives may be too different to compare side by side, or they may all seem equally impactful for different reasons. If you’re stuck between choices or feel like you have too many ideas with too little impact, CD3 can give you a more objective perspective.

2. Get stakeholder buy-in for research and implementation

As a product manager, you'll probably need to work with stakeholders to turn insights into action items or get the green light on ideas and initiatives. That means you need a way to help stakeholders and leaders see your vision and understand its impact. The objective case you build for an idea through CD3 can help you get stakeholder buy-in.

When you should (and shouldn’t) use a cost of delay analysis

The cost of delay divided by duration (CD3) analysis is a valuable tool for product managers because it can simplify prioritization. However, a CD3 analysis isn't the right tool in every scenario. Riz shared some of the challenges of this method:

Simply put, a CoD analysis only works if you have a list of valuable initiatives—and clarity on their benefits and timelines. If you only have a couple of ideas in total, then the time needed to run the analysis might not be worth it.

The cost of delay analysis also loses some value when uncertainty is high—for example, when you don’t know how long a new initiative will take, or if it won’t result in an immediate reward. Here are some ways to gauge whether it’s time to use a CD3 analysis.

A cost of delay analysis could slow you down if

• You aren’t sure how much revenue an idea will yield

• You only have a few ideas to choose from

• You aren’t sure how to estimate an idea or initiative’s timeline

A cost of delay analysis can help if

• You have a long list of big ideas and initiatives

• You have similar confidence levels about the impact of each initiative

• You want a quantitative way to support your product roadmap

How to conduct a cost of delay analysis in 3 steps

A CoD analysis comes in handy when you need a way to choose between high-impact ideas—and then communicate your reasoning. If you’ve never used CD3 before, though, it can seem a little abstract. Thankfully, there are only 3 steps to conducting a cost of delay analysis, and we’re going to explore each one in depth.

To make visualizing the CD3 process easier, let’s use a mock scenario. Imagine you’re a product manager (should be easy) who needs to decide which feature to build next quarter. 

There are 3 ideas for new product features:

• Idea A

• Idea B

• Idea C

We’re going to use this scenario in each step of the analysis—comparing idea timelines and payoff, then comparing analysis outcomes to choose a winner.

1. Compare revenue and time

For each example idea we consider, we have to calculate the time it’ll take and the revenue it’ll generate once completed.

Riz added that he “aims to have similar confidence levels for each initiative so that they can be fairly compared."

A cost of delay analysis also needs the same units to measure the timeline and economic impact: if the feature will take 3 weeks to build, compare that to weekly revenue returns.

How long will it take to complete the project?

The first step in the CD3 analysis is to figure out how long each idea will take to complete.

Sometimes, cross-team collaboration will impact your projected timeline. (For example, Riz collaborates with engineering and design partners to help with product timelines.) You can also look at past initiatives of a similar scope to get a time estimate.

Considering when each department will focus on initiatives—and how many you need to tackle each quarter—can help you work backward to plan timelines.

Now in our scenario, let’s say we determine:

• Idea A will take 4 weeks

• Idea B will take 2 weeks

• Idea C will take 1 week

How much revenue will this feature or initiative generate?

Once you know how long each project will take, you have to calculate the economic impact. For this, consider metrics like activation and retention. Riz said, “If it’s a specific initiative that’s applicable for only certain customer segments, then I narrow my estimates to just those segments.”

So let’s get back to our example. To keep things simple, we'll assume that each new user activation brings $130 in revenue, so we can estimate each idea's impact to be:

• Idea A will result in 45 new activations per week, equalling a revenue uplift of $5,850 per week

• Idea B will result in 35 new activations per week, equalling a revenue uplift of $4,550 per week

• Idea C will result in 25 new activations per week, equalling a revenue uplift of $3,250 per week

In this example, when Idea A is fully complete, it will deliver a revenue uplift of $5,850 per week. This means that for every week that it isn't complete, you're losing $5,850.

Pro tip: a good manager can reliably estimate how long an idea will take to bring to fruition, but predicting how much revenue a feature will generate is a huge challenge. There are so many data points to consider—it can be hard to know how to start. Thankfully, Contentsquare has a reliable set of Impact Qualification tools to remove the guesswork. You can:

• Create Zoning Analysis Heatmaps—heatmaps where your page’s content is divided up into blocks of content, such as text boxes, CTAs, or images—that show which elements on a page generate purchases or revenue. To do this, filter your Zoning Analysis by ‘revenue’ or ‘purchases’. This helps you estimate the impact of a project such as redesigning an underperforming content block. 

Contentsquare’s Zoning Analysis helps you understand which page elements are responsible for your revenue

• Quantify the revenue generated by particular user paths using the Journey Analysis tool. It turns your customer journey data into an easy-to-understand visualization. Filter it to see the revenue a particular customer journey generates. For example, you could use Journey Analysis to learn that customers who visit the ‘Our impact’ page are more likely to convert, and estimate the revenue benefit of initiatives that nudge users to this page. 

Use Journey Analysis to understand how much revenue particular user journeys generate   

• Quantify the revenue benefit of fixing an error by comparing the revenue generated by users who experienced an error, with that generated by those who did not experience it. This is useful if you’d like to understand the relative impact of fixing a bug compared to releasing new features that users have requested. 

Use Impact Qualification to understand how much revenue an error has cost you 

Contentsquare collects enough data points for a holistic overview of your customer journey, so you can draw an accurate picture of how your initiatives may impact your profits—it’s indispensable for accurate CoDs.

2. Use the analysis to prioritize ideas and initiatives

Now you know the timeline and impact of each idea, it’s time to compare outcomes. To get a CD3 score for each idea, divide revenue by time, and rank the ideas from highest to lowest based on their scores. A higher number means more potential lost income if you wait, and is the one you should put at the top of your list.

In our scenario, we calculated the CD3 score of each idea like this:

• Idea A: $5,850 weekly uplift / 4 weeks = 1463

• Idea B: $4,550 weekly uplift / 2 weeks = 2275

• Idea C: $3,250 weekly uplift / 1 week = 3250

In traditional prioritization methods, Idea A would take priority because it has the highest potential outcome. Idea B would follow, and finally, Idea C, which would mean incurring the cost of delay of:

• A, B, and C for 4 weeks

• B and C for 2 weeks

• C for 1 week

In total, this amounts to $73,450 of cost incurred through delay. When we apply CD3, our prioritization changes: we start with Idea C, Idea B follows, and finally Idea A. This way, we incur the cost of

• A, B, and C for 1 week

• A and B for 2 weeks

• A for 4 weeks

The total cost of delay in this scenario is $57,850, a 21% reduction compared to traditional prioritization methods.

Of course, other factors could impact your decision. For example, the timing of an idea might not work with all of the involved teams, or you might want to involve and delight customers by getting their feedback on your roadmap.

3. Communicate your decision with stakeholders

After you've completed your cost of delay analysis, it’s time to show off your plan.

Presenting your product roadmap alongside your CoD analysis ensures early buy-in, and helps everyone on the team understand why they’re working on the new initiative. At Contentsquare, product managers hold regular office hours with leadership to discuss ideas and concerns.

Cost of delay analyses = the secret to better prioritization  

Investing time in cost of delay analyses helps you plan your product initiatives judiciously,  with attention firmly focused on the company’s bottom line. 

However, a word of caution: while the formula behind a CD3 is simple, the devil is in the details. Misjudge your estimated completion time or your idea’s potential for revenue generation, and the whole calculation will be off. The best advice here is to make your estimates carefully. Ask for multiple opinions about how long an initiative will take—and use a tool like Contentsquare to calculate your idea’s potential for revenue generation. By investing the time to double check your initial base figures, you ensure your CD3s are accurate and helpful. 

FAQs about cost of delay analysis