This is the second post in a two-part series. Read part one here.
Traditional, project-based budgeting practices are often misaligned and counter-intuitive to Lean-Agile delivery. Lean budgeting offers a way for organizations to maintain financial and appropriate governance while also minimizing the overhead of traditional project-based funding and cost accounting.
Rather than burdening the PMO with significant decision-making responsibilities, in Lean budgeting, fiduciaries allocate funding by value stream, while teams within each value stream are empowered for rapid decision-making and flexible value delivery. This means enterprises can enjoy the best of both worlds: A value delivery process that supports agility at scale, as well as visibility and accountability into how investments are made across the company.
In this post, we’ll share more about the practices that distinguish the Lean-Agile approach to funding and delivery from traditional, project-based practices.
Funding by Value Stream
Funding by project has many limitations, as we shared in the first post in this series. To summarize, funding by project:
- Requires teams to devote time and energy into executing against detailed plans based largely on estimates
- Takes teams away from actually delivering customer value (instead, spending their time delivering against detailed, and likely outdated, plans)
- Moves people to the work, making it difficult for teams to establish working relationships and truly get into the Performing stage
- Means that teams are incentivized to stick to the project plan, rather than focus on achieving better business outcomes
Rather than trying to fund individual projects, the Lean budgeting approach allocates funding to value streams, with guardrails to define spending policies, guidelines, and practices for that portfolio. As a refresher: A value stream (or Line of Business) is defined as an end-to-end business process and the associated steps an organization takes to deliver customer value, or it may refer to a line of business that delivers value, typically a product or solution, to a customer.
As organizations evolve, the shape of their value streams often evolves too. For some companies, a value stream begins as a few teams organized to deliver a set or grouping of capabilities that satisfy a customer need. For others, it is truly the end-to-end value chain, from vision to value: A reflection of how value flows through the company to the customer.
Regardless of how an organization chooses to define its value streams, the purpose of organizing by value stream is generally the same: to deliver products and solutions beyond potentially disjointed project-based delivery. By aligning work and funding to delivery, value is created and managed more effectively.
Funding by value stream allows for flexibility, autonomy, and speed within each value stream, while maintaining cohesion across the portfolio.
Long-Lived, Self-Organizing Teams
In the first post in this series, we shared how short-lived, project-based teams can keep teams and the individuals within them from living up to their full potential.
Shifting to a value stream-based funding structure means that employees aren’t shuffled around from project to project or team to team. Instead, they work in stable, cross-functional teams, which are organized into value streams.
This allows team members to:
- Align around shared, defined goals of their value stream
- Optimize funding allocations of their value stream to deliver maximum value
- Have the autonomy to pivot at the epic level, eliminating the heavy change management processes around funding impacts due to changes in delivery (freeing up management’s time for more strategic work)
Continuous Flow, Not Sequential Steps
Annual budgeting and planning systems follow a linear structure, where plans are made for the year and then executed, with checkpoints throughout the year to assess status. Success within this sequential structure assumes that conditions and information will remain stable throughout the year. However, in most industries, this is not the case: New information, competitors, and business models can completely change the face of an industry within a matter of months.
In Lean-Agile organizations, work is planned, prioritized, and executed in a continuous flow. Teams continuously collect data about the performance of their products and services, as well as the market in which their customers (both internal and external) operate.
This continuous flow of Lean budgeting and planning includes space for incorporating new data, feedback, and information, and pivoting plans accordingly. As plans are executed, more data is collected about these and other ongoing initiatives to determine priorities for the near and distant future. As conditions change, teams adjust accordingly.
Alignment of stakeholders and teams is imperative to Lean budgeting. If there are changes across multiple value streams that need to be coordinated and changed, then happens in a broader quarterly steering meeting, which then feeds into the quarter/PI planning event. This means teams are incentivized to continuously create value–instead of simply sticking to a plan.
This means teams are incentivized to continuously create value–instead of simply sticking to a plan.
The key to successfully scaling Agile is to align budgeting and funding practices with the business outcomes the organization is trying to drive. Lean budgeting practices help to decrease funding overhead and friction, while maintaining financial governance, and aligning budgeting practices with Lean-Agile goals.
To learn more about Lean budgeting, check out our Lean Budgeting eBook.