In with trust, out with control: Agile financial planning allows you to create value seamlessly

The nature of business has changed due to software and R&D: we must accept uncertainty

The traditional way of budgeting was initially made for the industrial age when software was not part of the equation. However, we must accept that in today’s business environment, software is a major factor of competitive advantage – no matter the industry. This brings a fundamental change to the nature of business. Software development is not repetitive work. It is about solving problems with inherent uncertainty. 

Traditional budgeting aims to remove uncertainty from the equation, which is counter-productive due to the characteristics of software development. But, it is very natural for us humans. Our brain thinks that uncertainty is bad and traditional planning and cost control is a remedy to remove it. Our claim is that the premise of conventional cost control is short-lived in today’s world. 

When striving for enterprise-level true business agility, you need to have at least these three key enablers in place: 

• Stable and dedicated agile teams: A team works on one backlog at a time instead of having to be involved in multiple projects. As a result, the team grows together and develops skills over time, as a team. 

• Being organised around value: Teams deliver value continuously. They perform one value-adding functionality from beginning to end with as few dependencies to other teams as possible. 

• Budgeting and planning based on Lean-Agile principles will increase the value you achieve from the first two.

Traditional budgeting has become riskier in the digital era

Adopting lean and agile principles allows the finance and planning function to support the performing teams and the organisation to achieve true enterprise agility. It can, however, feel daunting as it forces one to accept or even embrace the uncertainty that comes with it.

When we take a closer look, there are several risks in traditional budgeting:

• Projects have more overhead and waste compared to a continuous development model.

• When there is a need for a change, a project’s content, cost, and objectives would need to be reapproved, making it very rigid and slow to reach a target.

• A lack of system-level end-to-end capabilities.

• More focus on utilisation and resource efficiency than actually delivering value.

• If R&D needs to estimate the cost on a detailed level for the next 12-18 months ahead, how realistic is it in the current era of rapid change?

Here are some examples of how an agile, continuous delivery approach can reduce risks from those mentioned above. Agility comes from the ability to change priorities based on what you have learned:

• Long-lasting teams accelerate learning over time.

• Cost is flat, and content is continuously reprioritised.

• A larger resource pool and continuous delivery justify the investment in a continuous delivery pipeline (TA + CI + CD = test automation, continuous improvement, and continuous delivery).

• Release Trains are capable and responsible for full market releases.

• Focus on flow efficiency: are we delivering value as fast as we can?

Increased trust helps with being comfortable with uncertainty

An agile way of budgeting can feel illogical at first because you are funding something without knowing the exact outcome. The end result may change based on user feedback collected during the development work. 

What you do know, however, is that you are funding a team of experts working in small value-creating increments, releasing something new every two weeks. For this to work, control needs to be replaced with trust. Trust allows teams to manage their own work and perform at their best. Trust also supports the whole organisation to be grounded on self-management, which increases creativity and workflow.

Trust can be increased in the organisation through practical steps, making it more comfortable to work with uncertain circumstances:

• Know the capabilities of your team and work on creating a culture of trust where people are comfortable with trying something new.

• Know your customers and what they need.

• Know the outcome you want to achieve and how much you’re willing to invest in trying to achieve it.

• Bare in mind that you’re funding value streams instead of projects.

• Let go of the rigidity that comes from viewing mistakes as “bad”.

• Create and promote a culture of transparency regarding what you know and what you don’t know.

Agile funding increases accuracy, efficiency, and predictability 

In agile budgeting, the content is variable, and the cost is flat. If teams need to do more work for a job, portfolio prioritisation manages that they will continue working on the most important initiatives. That way, more teams can engage in the work, or existing teams can spend more iterations on this important initiative. The total cost of the development organization will not increase as this is a reprioritisation decision. The product manager divides the work into minor, value-creating pieces, performed by cross-functional, agile teams who do the job from beginning to end. 

The benefits of an agile funding model include the finance function’s ability to accurately observe and forecast the OPEX run rate, where the money is spent, and if the resources are performing the tasks effectively. In addition, R&D has the freedom to manage content according to the pace of execution and the latest priorities. 

The teams' work comes from a jointly prioritised backlog, which ensures that the chosen work advances what is strategically important. Stability and predictability follow, making agile funding actually better also for the human brain – it becomes easier to accept uncertainty in the rapidly changing business environment, allowing you to use these changes to your benefit. 

"Lean Portfolio Management and a funding model that respects continuous development are both major enablers for any company readying itself for the future. Respecting uncertainty and the ability to change focus are characteristics of a modern governance model. A model that might be difficult to accept but mandatory to adopt." -Rami Sirkiä, SAFe Fellow and SPCT

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