Funding Flow: The Middle Ground of Agile Budgeting

By Roland Cuellar, LitheSpeed LLC and Tom Paider, Nationwide Insurance

Rather than a wholesale change of the funding model, there is a path forward that allows organizations to both maintain their project model and much of their funding model while still achieving greatly improved organizational agility.

Read the Abstract

According to the Business Agility Institute's Global Business Agility Report from 2019, there are three clear organizational predictors of business agility: flexible funding models, organizing work around value streams, and the drive for relentless improvement. Much has been written about the power of value stream management and creating a culture of continuous improvement. Less has been written about the “how” of moving to flexible funding, particularly the application of these models in companies with a long history of annual project funding cycles.

As these organizations attempt to pivot away from fixed constraint projects towards product lines and value streams, they find that traditional project funding models are incongruous with agile methods. Flexible funding models that allow teams to quickly pivot in reaction to internal and external feedback continue to be much sought after but seldom seen in the agile community.

We have seen a number of companies successfully move towards flexible funding models through their product centric transformations and attempt to do away with project-based funding in favor of flexible funding. But the truth is that for most organizations, this is just a bridge too far. Such a change would involve a radical change in funding, governance, estimation, and even accounting.

To be successful, an intermediate step is needed… a way that maintains some of the current financial model while allowing for the benefits of agility. In this paper, we will show how an intermediate approach that both maintains the current project-based model and a flexible agile model can co-exist.

Larger organizations will struggle with adopting an entirely new funding model in line with Agile ways of working. They have questions like:

• How do we justify project approvals and how do we budget these efforts?
• What financial inputs are required?
• How are the projects financially tracked once underway?
• How will we know what we are going to get and when?

Of course, the traditional approach most organizations use is a rigid funding model that locks in scope, timeframe, and budget in the hope of creating predictable financial outcomes. The sad truth, however, is that outcomes are seldom predictable. The original schedules are rarely hit, and substantial budget overruns are commonplace. Worse still, the business outcomes are not achieved at the level that was desired, even if most of the requirements were delivered. In fact, it is very common for the original business goals to be completely lost as the focus turns to locking down and tracking detailed scope and cost. Traditional approaches attempt to create highly precise views of delivery that are most often very inaccurate in terms of both project outcome and business outcome.

A principal flaw in this model is that we can know, a priori, exactly what the user will want and use, and that through their usage of these features, we will achieve our desired business outcomes. Even the most advanced product development organizations have a long history of significant product failures.

If the richest and most experienced product development firms on the planet cannot reliably predict what consumers will value, and what the resulting business benefits will be, then it seems somewhat ridiculous to think that we, using our long, linear, outdated, budgeting model, can do better.

More flexible approaches are key to creating an environment where we can quickly develop, deploy, learn, and adjust in order to iterate towards a winning solution. But for most organizations, this is simply too big of a change to the status quo. It is too great a leap to go from rigid scope-bound budgets and plans to what is sometimes perceived to be an open checkbook.

So where is the middle ground?

Rather than a wholesale change of the funding model, there is a path forward that allows organizations to both maintain their project model and much of their funding model while still achieving greatly improved organizational agility.