Cost of production
The cost of production is the value or cost of a product, calculated by adding the cost of resources used for making/developing the product. This total cost can be the cost of any of the factors that go into making the product, such as the cost of labor, transportation, storage, electricity, infrastructure, land, and so on.
Minimizing the cost of production
Below are factors that increase the cost of the production of a product, with measures that you can take to avoid or reduce each cost factor.
A defect is a malfunction in a product that might lead to dysfunction. Because of inaccuracies or negligence at the time of development or manufacturing, defects are inadvertently introduced into a product. This negligence results in investing time and resources in rectifying the defects in order to deliver a stable product to the market. This effort incurs cost and ultimately adds to the total cost of production.
Avoid or reduce defects in a product by:
- Continuously inspecting and improving. As Agile practices advise, we can continuously inspect the product while it's being implemented (with testing, peer reviews, etc.) and resolve the defects as they're detected.
- Analyzing defects. Introduce preventive measures when required.
- Adopting best engineering practices: We can adopt the best possible engineering practices, such as pair programming /development, test-driven development, continuous integration, and automation.
Overhead of process
Sometimes during product development, the team must follow many (or long) processes, which lead to spending a lot of time on process compliance and less time on the actual implementation of the product. This misuse of time results in increasing the time to market for the product and incurs higher resource expenses.
Avoid or reduce process overhead by:
- Determining the most feasible process for the product team by using past experiences or various case studies so that the team can focus more on product development rather than on processes.
Waiting time means anything that adds more time to completing a value-added activity, or delays at the beginning of the value-added activity. Some of the causes of waiting time are lack of necessary team members, unwanted processes, external dependencies, lack of "value," lack of understanding, incorrect assumptions, and impediments.
Reduce waiting time by:
- Identifying the required skill sets and capacities of members and their availability.
- Identifying the necessary and mandatory process at the beginning of the sprint.
- Planning effectively.
- Making sure to get clarification about assumptions at the right times and before the implementation of features, which are based on those assumptions.
Ignoring new ideas
Sticking to the same old practices and not learning from experience or not considering new ideas or suggestions can lead a team to produce less than their efficiency or capacity actually allows. This leads to an increase in the cost of production. Possible reasons for negligence are the lack of proper data or proofs, distributed teams, and lack of proper knowledge or sharing processes.
Avoid neglecting new ideas by:
- Maintaining a culture of continuous learning and knowledge sharing.
- Continuously learning through experiences and case studies of various successful teams or companies.
Transportation simply means shipping the product from one place to another.
In many cases, lack of an effective transportation method causes a delay in the product going live to market, resulting in an increase in the production cost.
To reduce transportation costs, take the time to analyze and determine the best possible transportation method, and then make the most use of it.
Implementing more than what is needed triggers an increase in unnecessary inventory, which causes an increase in production cost. Aside from the time spent on implementing the unnecessary code, we also need to invest time in maintaining the inventory. Improper planning and misunderstood customer requirements cause high inventory.
Avoid or reduce inventory cost by:
- Planning so that implementation is carried out for only what is required.
- Helping the team understand the exact requirements, so that implementation is carried out according to a well-planned goal.
Motion means passing the work/context from one person to another or from one hierarchical level to another. Unnecessary motion or waiting time while in motion increases the cost of production. Possible reasons for unnecessary motion are the nature of tasks, distributed teams, and lack of information (clarity).
Reduce or avoid unnecessary motion by:
- Having cross-functional teams.
- If teams are distributed over various locations, making sure that communication is effective and everyone has the same level of knowledge.
By developing extra features, you are providing more than what is being asked for. Wasting time on extra features leaves the team with less time for priority features, which leads to defects in important features. Possible reasons for teams spending significant time on extra features are lack of understanding of the product vision, unnecessary gold-plating by the development team, and wrong prioritization of product features.
Avoid developing extra features by:
- Effectively prioritizing the product requirements.
- Helping the team understand the priority of primary features and focusing on the primary features first rather than gold-plating all features.
Cost of delay
Cost of delay is the cost incurred while taking more time to build a product than what is planned initially. In case we don't release the product for quite a long time, there's the risk that our competitor releases it first, or that changes in technology occur that impact our final product. A stakeholder might not accept the product because it is not ready at the expected time. In this case, we face an extra cost of delay in releasing the product.
Factors that increase the delay
Delays are increased by:
- A high number of necessary approvals. Many approvals during the process lead teams to spend unnecessary time, and in the end cause delay in the product release.
- Incorrect prioritization of requirements. Incorrectly prioritizing features might cause the primary features of the product to get lower priority than nonfunctional, extra, or unnecessary features.
- Waiting for resources to become available. When work is dependent on other resources (engineers or tools) and those resources are unavailable, the team must wait — another delay.
- Increases in work in progress. Keeping many items in the work-in-progress category can result in completion of fewer or no items by the end of a sprint.
- Delays in getting the client to sign off on acceptance tests. In many scenarios, too much time is spent on getting sign-offs from the customer, or getting an approval from acceptance testing.
Reduce the cost of delay by:
- Implementing the most valuable features (most valuable product) first.
- Prioritizing the requirements according to business needs and implementing them incrementally.
- Working in collaboration with the customer.
- Building best engineering practices into development.