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How to prioritize initiatives with 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.
Last updated7 Oct 2021
You have a whole spread of ideas in front of you, plus your team's and users' 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.
We talked to one of Hotjar’s own product managers to learn how to prioritize ideas and initiatives. In this post, we cover:
What is a cost of delay analysis?
Cost of delay (CoD) analysis is a method used by product teams to determine how much revenue is lost by delaying work on valuable ideas and initiatives.
Cost of delay divided by duration (CD3) is the 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 two variables: how long they'll take to complete and how much revenue they'll generate. The results of your analysis will help you identify the idea or initiative that is too valuable to put off.
Mohammed Rizwan, Senior Product Manager at Hotjar, 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.”
2 main benefits of a cost of delay analysis
There are two main benefits to using CD3 as a product manager:
1. Cost of delay analysis lets you objectively prioritize your work
Weighing your idea options 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 an objective perspective.
2. Cost of delay analysis helps you 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 to have in their toolbox because it can simplify prioritization. A CD3 analysis isn't the right tool in every scenario, though. Riz shared some of the challenges of this method:
A cost of delay analysis requires an understanding of how long work will take and the revenue impact of each initiative. You need a good understanding of the benefits of the initiative and input from partners such as Design and Engineering to provide estimates. As such, there’s quite a lot of setup before a CoD analysis can be carried out.
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 one or two similarly-sized ideas to choose between
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
🤔 Not ready for a cost of delay analysis yet? There are other ways to prioritize your product initiatives. Some of the questions the Hotjar team asks itself when planning priorities are:
What’s our mission?
What do our users want?
What issues are critical?
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 three steps to conducting a cost of delay analysis, and we’re going to explore each.
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 new feature to build next quarter. In our scenario, let’s assume there are three ideas for new product features:
We’re going to use this scenario in each step of the analysis—comparing idea timelines and payoff, comparing analysis outcomes to choose a winner, and communicating your decision to stakeholders.
1. Compare the two elements of a cost of delay analysis: revenue and time
For each example idea we’re considering, we have to calculate how long it will take and how much revenue it will generate once complete.
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 three 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.
Another way to estimate how long you'll have to build new features is to use annual and quarterly objectives. For example, at Hotjar, there are yearly company objectives, plus quarterly objectives for departments and teams.
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. Megan Murphy, VP of Product at Hotjar, showed ProductLed how we set and track goals at Hotjar with a goal framework and quarterly Goal Hub.
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 is 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.
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 weeks = 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 reduction of 21% versus traditional prioritization methods.
Of course, there could be other factors that 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 could lead to early buy-in, and will help everyone on the team understand why they’re working on the new initiative.
At Hotjar, product managers hold regular office hours with leadership to discuss ideas and concerns.
🔥 Pro tip: keeping your team and stakeholders aware of user sentiment is an ongoing job. Thankfully, Heaven Schydlowsky, Digital Product Manager at Jenni Kayne, makes it easy to keep stakeholders up to date: download her free ecommerce optimization email template to keep your team and stakeholders in the loop.
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