Adam Dembny

The 5 Principles Behind Effective Agile Budgeting

If an organisation begins to implement Agile at scale, the question of how to fund Agile workstreams inevitably arises. Plainly, the traditional approach to budgeting, with its annual planning and reporting cycles, is an awkward counterpart to the more dynamic and iterative nature of Agile work. How can we extend that spirit of Agile to the way we approach budgeting, without sacrificing the necessary degrees of control and accountability? While there is no one definitive answer to that question, there are some key principles that we have found to be vital to effective Agile budgeting. 

  1. Work in shorter funding cycles

Traditional budgeting and planning cycles are great for developing clarity and accountability, but their emphasis on longer horizons can make it difficult to capitalise on what is working well or to course correct on what is not. Over time this translates to increased risk and suboptimal return on investment (ROI). 

Agile budgeting, by contrast, is highly iterative, with the traditional funding period broken down into several separate rounds held frequently. The cadence depends on many factors within the organisation and may need adjusting as you mature on your Agile journey. The key focus should be bringing the funding and delivery cycles into closer alignment. 

Investments can start small by allocating budget to proof of concepts and can scale naturally to reflect performance, and the value added by new features. This is often compared to the Venture Capitalist approach where business cases are presented along with a request for investment. Awarding of the initial funding is decided and then more funding rounds occur to access additional investment based on performance and value. All of this serves to give the organisation more micro-control over how its resources are deployed with the ability to Stop as well as Scale investments. 

  1. Fund value streams, not projects

The conventional way of approaching budgeting is to think in terms of projects. At its conception a project’s scope is defined, a cost and time estimate are attached to it and then work commences. True validation really only ever occurs at the project’s conclusion. 

However, projects do not represent how a business should really deliver value. 

Agile budgeting and particularly in the Scaled Agile Framework (SAFe), conceptualises budgeting in terms of Value Streams. The fundamental principle is allocating budget to a strategic business outcome or objective with a set of guardrails in place. These value streams approach differs to Projects by fixing the cost and time and allowing those closest to the customer to have autonomy to prioritise delivery of features to release the most value. 

The benefits of this approach are considerable. In the first instance, fixing the budget for a value stream in a funding round will provide the organisation budget transparency and predictability with iterative feedback on the delivered scope at the end of the round. Secondly, it enables the business to look at itself in a way that is closer to how their customers see and experience them, rather than through the distorted prism of internal structures and silos. Finally, the autonomy provided to teams to make decisions based on what they hear from customers is empowering and fosters a culture of shared ownership. 

  1. Embrace Collaborative planning

We are all familiar with the Us v Them dynamic that can arise during budget allocation exercises. Where traditional budgeting is concerned, this is seen as a regrettable consequence of the necessary distance between the business and delivery teams. Under a traditional budgeting paradigm, we can seek to mitigate these negative effects, but don’t pretend we can overcome them. 

Agile budgeting – and in keeping with Agile approaches more generally – is specifically concerned with bridging these sorts of gaps. During the funding rounds, business and delivery teams come together to allocate the funding available. They determine what areas are funded, to what extent and the priority. Business and Delivery Leaders hear Product Team “pitches” and then decide collaboratively the distribution of funding. These sessions need to be clear, transparent, and public. 

Over time this should have a positive effect on the ROI and effective decision-making, but it also has a more immediate effect on culture, morale and accountability, with performance over the previous funding rounds informing whether or not funding is increased, decreased or paused. 

  1. Diversify your investments by lifecycle

Where any sort of investment is concerned, we are familiar with the wisdom of diversifying our investments across different asset classes. Doing so insulates us from some risk while making us more responsive to opportunity. In a more traditional budgeting paradigm, this can be difficult to achieve as we can have fewer but larger investments. 

Fortunately, Agile budgeting makes it simple to diversify the businesses investments. By having awareness of where activities are in the lifecycle, investment can be balanced on progressing innovation, scaling and retiring products. 

Balancing our investments in the present with our investments in the near- and further-future remains challenging – but the greater granularity afforded to us by an Agile approach allows us to shift the overall emphasis of our investments quickly in response to changing circumstances. 

  1. Hybrid approaches are ok

The idea of transitioning to an Agile budgeting approach can feel very ‘all or nothing’. The idea might seem attractive, but the leap of faith required to take you from where you are to where you would need to be can seem unrealistically large. Agile is often spoken about in dogmatic and rigid terms. But hybrid approaches are ok! In fact, a transitional period where Agile mindsets and frameworks are gradually adopted across the business is arguably more sustainable and effective than the imposition of an entirely new way of working developed outside the business. 

Final thoughts 

As you mature on your Agile journey you will find yourself asking “what next?” Agile budgeting is one of the changes you should prioritise. There is no one ‘right’ way to implement Agile in budgeting or any other part of your business for that matter. The best Agile practices are bespoke and emerge from experimentation with a focus on people to a develop a consensus within the organisation. 

You cannot underestimate the human element to Agile, it is integral to the success of these principles and any other element of Agile. When Senior Leadership provides the right sponsorship to change the process and structure, teams feel supported in their adoption of these new ways of working and enable financial agility. Additionally, without empowerment and delegation from these Senior Leaders to the People who own the Product then again, it just turns into the same thing as usual just done slightly more frequently. When autonomy is provided to the right People closest to the Product or Service, they are empowered to make decisions they believe to be best for the Product with a sense of shared ownership. 

In true Agile fashion, never be afraid to break the problem down into smaller pieces. Try the above, experiment and learn as you go. Always remember it’s ‘Evolution’ not Revolution… 


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