The traditional, fixed budgeting process often undermines many companies that are trying to run their business in an Agile way.
When companies “go Agile,” they may start with the product development organization, including all designers, developers, product managers, quality management, and similar roles. As Agile gets more adoption internally, there are plenty of early success opportunities to be had. If you already realize the need for further expertise, Hyperdrive is ready to provide consulting to strengthen your Agile team or Agile staffing options to help build it.
As the organization grows in agile maturity, these teams bump up against the traditional fixed-budgeting processes. It’s revealed that traditional budgeting has become incompatible with the new ways of working. Agile should enable the teams’ responses to customer and market changes, and budgeting should enable that “adaptive” behavior.
What is Agile Funding?
Traditional budgeting has many characteristics, and funding is often entirely allocated upfront.
Agile funding means funding value streams and outcomes as opposed to traditional, output-driven budgets. Why is it important and how can you adopt it?
Bringing Agile Financing to the Shared Services Organization
Business Agility requires more than agile product teams. It’s critical to bring agile processes and agile budgeting to senior leadership, the PMO, and shared services departments: Human Resources, Operations, Marketing, and most importantly, Finance.
With the Finance team changing their ways of working, the agility of the leadership, product teams, and all other departments won’t be hampered when major shifts in the market occur that require immediate reaction. Finance is the fuel line of the organization. Without the ability to get fuel to the engine - it’s difficult to move quickly, and the business is nothing more than a stalled car.
Business Agility is the Goal — But Where’s the Roadmap?
It can seem daunting to change the known processes of funding projects for longer terms, with funding products in the short term. However, there are three key strategies companies can use to shift the processes and mindsets in their leadership, PMO, and finance team to pursue agile budgeting:
- Unlock the budget
- Allocate funding by opportunity, not by department
- Tolerate (and even embrace) risk
Unlock the Budget
First, all parties must accept that the new market reality moves too quickly for the standard annual budgeting process to work. In agile product creation, the work is emergent and unknowable. However, the project-based, Waterfall model of budgeting requires product leadership to submit high fidelity business cases in order to receive funding. Sometimes, this amounts to little more than Business Agility theater, as the business case and ideal outcomes never come to pass.
Budgeting in this manner locks the product team into delivering a fixed series of requirements on a fixed timeline. In agile, product teams must be able to welcome the unknowable, and adapt to changing conditions within the company and in the marketplace, regardless of the stage the product is in. With a traditional budgeting process, a team that is working in an agile way will be constrained when they find that the business cannot redistribute funding, even for high-potential products.
In order to follow the path of agility, the leadership and finance team should use an adaptive approach to portfolio management, prioritizing programs and products with high potential value, and unlocking portions of the budget for programs that may seem risky. One way to begin a more agile budgeting process is to introduce an annual spending cap for a program, rather than a quarterly budget, to give product teams more runway to produce results. Working in an agile, iterative fashion, they will produce value incrementally and often, which will give the leadership the data they need to make decisions about continuing the product development process or program.
Allocate Funding by Opportunity, Not by Department
The way in which funding is allocated in a traditional business model divides funding by headcount, into departments or functions, rather than dividing funding by where the need can drive the most business value. The ability to create value for the business changes over time, and so budgeting should change with it. The traditional model can reinforce divisions between departments (killing collaboration) and create situations where excellent ideas for products or services fail due to lack of funding.
To alleviate this issue and ensure your business is funding the most valuable business opportunities, re-calibrate the way in which you identify and align the organization’s investment decisions. Do high performers have access to leadership to pitch ideas, or are they stuck in trying to get a piece of their department’s already-allocated budget? Do you rely on those high-fidelity business cases instead of risking a small proportion of the budget on a minimum viable product (MVP)? Even these two changes can cause a shockwave of cultural transformation in most any company undergoing product delivery pressures.
Tolerate (and Even Embrace) Risk
Established companies tend to be highly risk-averse. It’s safer for executives (whose performance is measured by ROI) to fund the tried-and-true. When their jobs are on the line, the top level in an organization will stick to funding the programs that are stable and known, even if the risky ideas make sense.
Risk tolerance in an organization must come from the top — The CEO, the board of directors, and even the shareholders. However, this doesn’t mean betting the bank. Dipping a toe into agile budgeting can be as simple as setting aside 5-10% of available capital expenditures to fund new ideas. Using the MVP process, agile teams can produce powerful proofs of concept in just weeks — or quickly realize the idea is unworkable, and move on to something else.
Successful Agile Transformations Require Agile Funding
The most effective agile transformations call for commitment from all levels of the company and departments, including Finance. When established organizations learn to tolerate risks, budget appropriately for them, and transform budgeting processes to fund short-term opportunities, great change can happen that takes the company in a new direction. One key success factor will be to use funding decisions as a tool to align stakeholders. This will shape a shared vision across executives and management.
The market will not slow down for companies to catch up. Those businesses that have been established for a hundred years or more have survived through their ability to adapt to change, not their ability to fund the same initiatives. Powerful consumer- and technology-driven change is disrupting many industries today and will only continue — the survivors will be the adaptable agilists with the funding capabilities to match.
Learn More About Funding Your Company’s Future With Agile Budgeting
Future-proof your business today with tools that will teach you (and your team!) about agile funding.
Hyperdrive’s Lean Portfolio Management certification (ICP-LPM) course enables adaptive agile funding, as well as value-based prioritization, accelerated data-driven decisioning, and active stakeholder alignment. Unlearn the certainty of funding a project with certain outputs (iron triangle) to fund outcomes instead.
Watch this recording of our LPM Lunch & Learn to understand how you can keep budgets and day-to-day work aligned with overall company goals. LPM isn’t just for Portfolio Managers; learn how it can benefit your career and company!
Join us on March 8th at 12pm PST for the latest in our Lunch & Learn series: Succeeding in Business Agility: Beyond Budgeting. You’ll learn how to scale agile to the enterprise level by applying practical methods for resource allocation. Understand how to create dynamic, agile budgeting and forecasting in a way that works for large companies, and how to set up the business for transparency with self-regulating management mechanisms. These methods foster trust and empowerment, and redefine performance measures — all without losing control of the bottom line.
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