Let’s face it, technology is expensive. No matter the type or size of your organization, technology will most likely be one of its top three expenses along with people and facilities.
Technology financial management – getting maximum value out of your IT investments – isn’t easy, but by changing the way in which we think about IT budgeting and funding we can help our teams, suppliers, and customers to deliver better, faster, safer, and more cost-effective IT and business services.
Most corporate budgets follow an annual cycle something like this:
- Somewhere between July and October, you will respond to a budget email stating what you want – budget-wise – for next year
- Somewhere between September and December, you will discover that your request was fulfilled minus x% (although hearing it after the next financial year has started is not unheard of)
- In January or February, you might receive notice that you’re over budget, because December bills weren’t accrued properly and have now been attributed to the new fiscal year
- In late October (and maybe earlier), you will receive notice that you’re under budget – so please “use it or lose it”
Then corporate budgets are split between capital expenses (CapEx) and operating expenses (OpEx), with CapEx for new or significant, high-cost changes, and OpEx for the daily running of your business.
Common Budgeting Pains
There are numerous age-old potential issues for those involved in IT budgeting, these include that:
- The planning process is slow and often doesn’t allow for changes to be introduced with agility to meet changing circumstances
- Budgets are set and therefore managers feel constrained; especially as their bonuses are probably linked to their ability to stay in budget but not set against the value they deliver
- Budgets don’t necessarily underpin the decision-making process and thus don’t act as a guide instead of a constraint
Then others that are more recent:
- Many companies are now use Agile techniques (Scrum) and expect teams to deliver something every two weeks against a budget that is set for a 13-15-month plan and has no link whatsoever to the two-week cycle
- Agile product owners are forced to fund work against annual budgets, or risk losing that money, rather than looking at how to deliver value and therefore continue to obtain funding based on that work
- The outcomes of forcing antiquated budgeting processes onto Agile teams discourages transparency and adversely affects morale
Is it Time for Agile Budgeting (and Funding)?
What if we decentralized the management of money from the granting of money? What if we used the practices of Agile to create an iterative budget? Such that:
- We would agree an annual plan (budget) which underpinned the 3-5 year plan
- We would map Epics against the budgets
- We would breakdown the work into use cases in collaboration with the product owner, teams, and where possible customer – showing cost and expected value
- All breakdowns would be in the product backlog
- Tools would show the amount of time for a piece of work and also the cost and expected value to help in the grooming and prioritizing of work
- Work would be assessed against value and cost as well as other factors during the retrospective
- Additional funds would be granted as value was redeemed
- Legacy or technical debt activities performed as part of a sprint would contribute to the funds available for a product
- Reporting, monitoring, and alerting would be integrated into the financial tools and processes of the organization
- Quarterly reviews of the budget and subsequent decisions would enable further funding
But this isn’t just a change in the way we budget, it’s also a change to how we view IT expenditure and the associated returns.
This Requires a Change to a Culture of Value
Which in turn involves:
- That budgeting is a planning process while funding is the process of giving money to achieve a purpose
- Using Value Stream Mapping to understand how your IT organization budgets and funds today before creating a strategic plan to begin Agile budgeting and funding
- Piloting the new process(es) and improving iteratively via the use of tools that integrate across the technology and financial lifecycles
- Maintaining the collaboration and communication of the budget preparation and changes with the product owners and suppliers
- Celebrating financial success as well as technology success
Reaping the Benefits of Agile Budgeting
So, what does this change in budgeting and funding give you? Example wins include that:
- Teams are confident in the value of their work, as are suppliers, stakeholders, and customers
- Governance is simplified; as is reporting, monitoring, and alerting
- Agility and flexibility of funds is introduced to meet competitive, regulatory, or political changes
- The decision-making framework is better understood and appreciated by all involved
- Integrated toolsets help technology teams make products better, faster, and safer, and with justified cost
There’s no doubt that this is a massive cultural change but if the current budgeting and funding model is not allowing for the flexibility your organization needs, then why are you continuing with a broken model? What about instead using the values and framework of Agile to create a new way of budgeting and funding?
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