In Czech Republic, we have a saying that could be translated as “throwing peas against the wall”. It means that you are saying something, but nobody heeds it, and it is the same as if words reflect back and stayed in noone’s ears. Cryengine of course does not have problems with implementing children, because it does not care what 3D mesh it moves around. And problem isn’t also that it could not render small NPCs.
But small NPCs would require different animations (lots of them) to fit them in environment and it would be problematic to fit them also in game mechanisms and AI. In the time when nobody knew if KCD will sell and how long development will take, this was a feature to abandon. Yes, development time CAN be a reason, because even 4 years of development (not 8) may not be enough. You now see what more ideas Warhorse had, did not make them on time, and now releases them as DLCs.