PWC estimates that about 28% of agile projects are more successful than traditional ones. Agile budgeting could be the difference for your organization to stay ahead of the competition or even lose relevance in the ever-changing modern business world.

The change to a flexible budgeting method allows an organization to have small continuous changes. It’s also worth noting that about 34% of projects are usually not baselined at the planning stage. The agile budgeting approach also helps to increase financial accuracy while also accommodates shifting opportunities and priorities.

What is Agile Budgeting and How Does it Work?

For years before the agile budgeting concept was widely accepted, project plans followed a traditional budgeting process. It involved gathering all requirements, creating estimates, and then mapping out the whole project at once. You had to wait until the end of the project to get a solution, and any priorities or requirements could easily make the entire project go to a tailspin.

Over time, businesses recognized the inefficiencies in this system and had to look for alternative methods taking into account the needed changes throughout the development process. It eventually led to the development of agile budgeting that fostered a flexible and collaborative environment. Even better, it took into account shifting priorities and needs that can occur during a project in any organization. Additionally, agile budgeting allows you to deliver bits of the project instead of waiting till the end to deliver the final report at once.

An agile digital product works in short periods or sprints, usually one to two weeks. Typically, it’s dedicated to tackling prioritized tasks from your project backlog. The aim is to produce an iteration of the product for review, feedback, and testing that will influence the next sprint’s direction.

Waterfall vs. Agile Budget management

The traditional waterfall approach in budgeting is top-down, usually with one senior decision-maker. It’s tightly controlled and involves vigorous gatekeeping on expenditure. Still, at the beginning of any project, management decides the appropriate investment level before any development works begin. While this is standard procedure to this approach, it also restricts your expenditure in advance. Sadly, that model doesn’t work in the modern, uncertain, volatile, ambiguous, and complex business world.

However, it doesn’t mean that agile budgeting doesn’t need advanced planning, but you need to facilitate changes. Therefore, adopting an agile budget allows you to adapt to relevant inputs and new information as it becomes available.

Strategies to Establish Accurate Project Budgeting

For agile teams to be flexible, they need to stick to the following strategies:

Ensure All Essential Elements are Included in the Project Scope

To develop a realistic budget, your team needs to establish the stakeholders’ requirements and expectations. You can develop a projected map for an organization’s project, which you get familiar with during the consultation level. The presentations allow employees to assess the entire scope to ensure all elements included align with stakeholders’ expectations. The process ensures that you have a realistic budget.

Establish a Refining Budget Process

Now that you have a clear idea of what the project requires, you can calculate the expected costs. It starts with the project definition phase, where the concept gets established but with no prices availed. It then gets to the detailed requirement phase to estimate the general product development cost. It’s usually based on the client’s budget and the project’s perceived difficulty. You get a prototype of the software within your estimated budget, which the team uses to provide a final quotation.

Use Your Budget to Create a Refined Product

At this stage, hold a meeting to define the sprints. The team should also carry out a spring review and retrospective after each period. In this evaluation and planning process, you also need to include assessments and monitoring of the budget.

Agile Budgeting Tips

Now that you understand agile budgeting, you need to learn a few tips on the best way to integrate it into the teams in your organization. Some of the tips you need to adhere to in any agile budget include:

  • Try to ensure that you deliver a preference to a shorter timescale. You can also try having a gradual delivery of the projects, for example, in weeks or months. It’s still preferable from the customer’s point of view.
  • No matter the level of technology you have at your disposal or the number of talented employees you have in the team, communication is vital on any project. Therefore, make sure you have face-to-face sessions for better results.
  • Keep in mind that your attention as the financial officer is vital to achieving technical excellence and a good design.
  • Stop, look and listen. It’s essential to have periodic stops to give yourself time to reflect on the best ways to be more efficient. It will help you develop more techniques or changes to adjust and tune up your approach accordingly.
  • It’s essential to build your project around a well-motivated team. Although agile budgeting makes your work more efficient, the right individual brings in an environment that lends itself to progress to ensure that the work gets done.
  • To sustain development in any organization, you must have agile processes. Throughout your projects, the developers, users, and sponsors should maintain a constant pace.
  • Your priority should always focus on satisfying the customer.

Benefits of Agile Budgeting

Agile Budgeting is a welcome change for many financial professionals. It helps organizations in various ways, which is the reason for the rapid rise in popularity. Notably, about 71% of enterprises have incorporated agile approaches in their projects.

Here are some of the most common benefits of this approach.

It’s effective

Remember that agile budget management is usually distributed and not invested in a single budget holder. It brings more significant input to the budget management and a broader perspective and ideally makes it more effective.

Quicker Decision Making

The main reason why most companies have incorporated this style of planning and budgeting in their operations is quick decision-making. Still, it does not only help with current issues but also allows for future modeling and forecasting. It also gives you a competitive edge over your competitors. The more agile a business is, the faster it will respond to market changes, sales, and productivity. Key decision-makers such as CFO’s will also comprehend potential opportunities or challenges they might encounter on the horizon. By identifying such elements, they can make better preparations for the future.

It Leaves Room For Changes

One great advantage of agile budgeting is that it gives you the ability to amend it to different product iterations base on real feedback. It ensures that the product or project you are working on is more user-focused. In the traditional forecasting and budgeting approach, you may not achieve the desired agility. With an agile system, financial managers can have predictive models, enabling a company to have a ready plan for any changes.

Organizational Cooperation

More and more organizations are looking for the best ways to enhance cooperation across various departments. While it may seem somewhat simple to accomplish this goal, budgetary constraints can make it harder to fulfill. Luckily, the agile approach emphasizes the overall operations, which helps to minimize departmental budget battles. This way, department managers can work together and make decisions harmoniously, which improves business productivity and efficiency.

Operational Alignment

Like in organizational cooperation, a company runs more effectively when information gets to the entire organization uniformly. It helps financial officers take a more strategic role in getting key players from various departments to be on the same page. Besides, an agile system has critical indicators for every department. This way, organization management can concentrate on improving performance as it involves all the company’s operations.

Simplicity

The budgeting or planning process requires all the stakeholders in a company to have access to vital data. However, you also need to have a complete understanding of all the essential details. An agile budget software system helps eliminate complex information while also maintaining the key performance indicators. Management can access about 90% to 100% of the organization’s critical financial and operations performance data, while in the traditional system, you can only access about 1% to 29% per a CFO study.

Data Integrity

A financial manager or CFO usually has some degree of doubt about their budget and forecasts’ accuracy. In the case of incorrect figures, it can lead to a massive trickle-down impact on the entire organization. When you use the agile approach, it enables you to focus on the essential details that matter to the company. It helps eliminate unnecessary data while ensuring that you can use a single source and get the correct numbers.

More Flexibility

In case a factor or any circumstance changes, it will not affect the remaining year’s budget. For instance, if there is a pandemic that forces your employees in the development team to work from home, you will still stick to the same parameters. In most cases, you recalibrate the expenditure or project’s course in the next round of retrospectives and reviews.

It Easily Fits into Your Schedule

Since sprints are precisely defined periods, you can easily translate the project’s budget into annual or quarterly terms when you need to put it in a broader context of your company’s financial management.

Defined Drivers

Every organization has its key indicators that represent its overall performance. If you have the ability to drill down to these specific details, it helps to give more emphasis on what matters. Having a better definition of business drivers also increases flexibility.

Efficiency

Nowadays, there is a high possibility of getting massive amounts of data, which increases the finance department’s chances of getting swamped. Employees find themselves working too much on data entry and budget preparation instead of focusing on analysis and models. An agile-based system increases department productivity. Employees spend time on the data that matters and the details the management needs for better decision-making. It also helps them to analyze more variables and contribute to the entire operational strategy.

Who are the Agile Budget Managers?

You most probably have this in mind. Well, an agile budget still needs effective management. Although it’s flexible, some decisions and accountabilities need to be taken. Therefore, the responsibility of managing an agile budget is potentially placed on everyone’s shoulders. The entire process seeks to eliminate some obvious manager roles. For instance, the scrum manager is there to guide instead of managing the team and facilitating the task they tackle within the scrum’s framework. Generally, this means that every team member has their input into budget management.

The scrum master or project owner estimates a budget for every item or activity on the project backlog. The estimation is usually based on each item’s time estimate, the team’s time cost, and other additional expenses factored in. For monitoring, the product or project owner can access budgeting details such as time spent on the project. The information gives a product owner up-to-date budget data to make an informed decision about expenditure.

Key Takeaway

The uncertainty created by the COVID 19 pandemic has made the budgeting process particularly chaotic, but let’s face it, budgeting processes are frustrating, even in typical times. Most start six months early with the promise of transformation but quickly give way to tedious financial forecasts, templates, redefining targets, and reappropriating resources.

The agile budgeting approach seeks to establish the outcomes that will be key for strategic success. By prioritizing these approaches, it’s easier to allocate resources to areas that matter most in your product development process.

Cprime Agile Solutions Help you Build With Speed and Quality

At Cprime, we work with a network of over 200 agile experts, keen to discuss your product’s strategy with you and suggest working solutions. Our agile solutions include lean portfolio management, agile transformation, safe solutions, and agile for hardware. Contact us today for more information about our solutions and be sure to view our Agile Finance Boot Camp to improve your agile budgeting.

An Alten Company, Cprime is a global consulting firm helping transforming businesses get in sync.