Capacity Planning and Cost of Delay

Effective prioritisation has two outcomes, it creates an ordered backlog that can be used to align an organisation’s activity, and it forms decision makers into a team. The first outcome can be considered tactical and the second strategic. Arguably the second is more valuable than the first as it will result in optimising the outcomes for the organisation rather than each decision maker attempting to optimise their own outcome. When each decision maker attempts to optimise their own outcome, the outcome for the organisation is often sub-optimal.

Now that we  understand that there are two outcomes, we can ensure that both occur. All to often we will deliver the tactical ordered backlog but fail to form the decision makers into a team. We need to ensure that we form the decision makers into a team AND we order the backlog.

An enabling constraint is one that creates a higher order system that provides feedback to the agents in the lower order system and constrains their behaviour. In concrete terms, an enabling constraint takes a group of individuals and constrains them in some way to form them into a team. Becoming a member of that team feeds back into their identity and constrains the way that they behave. For example, membership of the team may constrain members to consider the needs of the organisation above their own needs, goals or targets.

A decision making tool helps a team to order the backlog. It provides a common frame of reference to enable comparison of disparate items.

Sometimes it is possible that a single tool can achieve both outcomes. At Maersk, Cost of Delay was (apparently*) used not only to order the backlog, but also the mechanism to bring the stakeholders together. Cost of Delay acted as an enabling constraint that aligned the decision makers. In the context where all investments have to be expressed in financial terms, Cost of Delay can act as an enabling constraint.

In some contexts, it is useful to separate the enabling constraint that forms the team from the decision making mechanism. This allows you to change the decision making mechanism without losing the team. If the enabling constraint and decision making mechanism are too deeply entwined, failure of the decision making mechanism may cause the enabling constraint to fail. For example:

• An economic decision making mechanism is being used and an important investment in the complex or chaos domain arises that causes the entire process to fail.
• The team has ordered the backlog and a Hippo announces changes to portfolio that they cannot share due to regulatory reasons. (in this situation, the team should ideally be subjected to an NDA and introduced to the privileged information but that is not always possible or desirable).

Sometimes it may be possible to establish an enabling constraint but the organisation cannot establish an economic decision making framework. In contemporary organisations, economic metrics are seen as lagging indicators of success, and other metrics are seen as equally important. These other metrics might be number of customer, activity or lead time. In such an organisation, it might be impossible to land cost of delay as a decision making mechanism. However, establishing the enabling constraint may make it easier to establish an economic decision making framework at a later date… if necessary.

In other words, the team of decision makers need to be able to choose the most appropriate mechanism for ordering the backlog without feeling they are abandoning the process that forms the team.

Final Thought

Only members of the Community of Solutions insist that a particular solution is the best in all contexts, for example insisting that we use Capacity Planning OR Cost of Delay everywhere. Members of the Community of Needs are more comfortable with using different solutions to satisfy a need, for example using Capacity Planning AND Cost of Delay.

Capacity Planning and Cost of Delay are complimentary concepts. Understanding them as separate and independent tools allows us to create more resilient portfolio processes.

* This is a second hand anecdote.