The article “The effects of increasing capacity” is all about companies increasing capacity without paving the way for such an undertaking. What is even more dramatic is the fact that most companies lack a real feeling for the economic effects increased waiting times can have. It is, therefore, not clear what cost of delay may incur when work is finished later. How about an example?
A sports article manufacturer lost approximately 300,000 Euro per year because bookkeeping was not able to make use of discount periods. By the time the invoice made it from the various departments to the people who can authorize payment, the discount periods had long expired and the full amount was then due. This was quite a shock after everything had been calculated and one could see how much money could have been saved if the periods would have been taken into consideration. The path of the invoice through the company was laid out and it quickly became clear that several handoff points were completely redundant. The people involved were given more competences in order to make their own decisions. Thus the “cycle time” for invoices within the company was reduced from 20 days to just three and each discount period could be used to its fullest advantage. This company was able to save an average of 5,800 Euro a week just by understanding and optimizing procedures without having to make anyone work any faster or employing more workers in order to get invoices to their goal. This is the economy of waiting times.
We can of course argue that the sports article manufacturer had a pretty easy job with quantifying the cost of delay. True, in this example the quantification was not exactly rocket science. But, just because cost of delay might be difficult to quantify, does not mean that the easier choice of ignoring them will supply better results. The opposite is true! As long as a company does not have a feeling for how much money is lost on waiting or delayed market entry, then that company will continue to make the wrong  decisions what to work on next during queue replenishment. Time is an economic component, or to quote Don Reinertsen: “While you may ignore economics, it won’t ignore you.”
Of course, there are many other risk criteria which influence prioritization decisions and I do not want to say that the quantification of the cost of delay is the all-singing all-dancing method that will help to always make the right decisions. However, understanding the cost of delay is, as far as my work within companies is concerned, a good starting point for helping all parties involved to get a feeling for the idea that classic prioritization creates more problems than it solves.
Understanding cost of delay helps to go from subjective randomness to economic rationality and thus shift the goals of the company back into focus. Because the cost of delay brings a common language – the value of a job defined in Euro – into discussion, comparability between individual alternatives is made possible.
For me personally, it is crucial that waiting times, which make up the majority of the cycle time, finally get a price tag through cost of delay. In some cases, the longer the wait during processing, the smaller the possibility becomes to tap into the fullest value of a job and the more costs incur. I have often seen some of my training participants gasping after they have calculated their cost of delay and initiated improvements for their projects for the first time. Suddenly it becomes clear that people do not need to work faster in order to have a competitive time-to-market. In 1993, W. Edwards Deming was quoted as having said “A bad system will beat a good person every time” during a seminar in Phoenix, and he was quite right. Let us not work on breeding high performance employees, but rather find a way to make their work easier. When it becomes clear how much handoffs, runarounds and unnecessary processes cost for all parties, then this will quite often lead to discussions on improvement. This is exactly the reason why I try to establish quantifying cost of delay as the first tool for prioritization within a company.