What is cost of delay?
Cost of delay is what one more day of waiting costs at a particular step, and it is what turns a process map into a ranked list of things worth fixing.
Cost of delay in plain words
It is built from what the delay actually causes: cash borrowed to cover the gap, early-payment discounts missed, penalties incurred, work redone. Multiply that daily cost by the waiting time and the volume of cases passing through, and each step carries a figure.
How is cost of delay calculated?
cost of delay = days waited × cases affected × cost per case per day
The last term is the assumption. State it, and let anyone who disagrees change it and see the ranking move.
Cost of delay: a worked example
Pricing one week taken out of client review.
- Cash held at that step
- ₹38.4 Cr
- Days removed
- 7
- Cost of funding
- 11% a year
- Calculation
- ₹38.4 Cr × 11% × 7 ÷ 365
- Value of the week
- about ₹8.1 lakh, recurring every cycle
The 11% is the assumption. Change it to 9% and the figure moves to ₹6.6 lakh — the ranking of steps does not move at all, which is the point.
Why does cost of delay matter?
Without it, every bottleneck looks equally urgent. With it, the top three are obvious and the rest can wait.
Where does cost of delay mislead?
It is a modelled figure, not a measured one, and it should never be reported to the rupee. Its job is to order a list correctly, which it does robustly; its precision beyond that is false.
What do people get wrong about cost of delay?
- Hiding the assumption
- A rupee figure with no stated cost of capital behind it gets treated as invented, and the finding dies in the meeting where someone asks where the number came from.
- Reporting it to the rupee
- The figure is a model. Quoting ₹8,12,447 claims a precision it does not have; quoting 'about ₹8 lakh a cycle' is both honest and harder to argue with.
- Counting the same cash twice
- The same money sitting behind two consecutive steps is one pool, not two. Summing every step's cost of delay overstates the total, sometimes by a lot.
How does Crestline measure cost of delay?
Crestline prices each step from the cash actually held there, the volume passing through and a cost of delay you set in the settings. The assumption is visible on the finding, so anyone can change it and watch the list reorder.