What You'll Learn
There are ways to overcome project control challenges and successfully align smart budgeting methods with agile workflows. Download the free white paper now to get a better financial grip on agile projects.
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Agile methods and frameworks continue to take the project management world by storm and are also getting increasingly popular in the Dutch enterprise landscape. Unfortunately, fine-tuning budgeting and resource allocation to agile approaches remain a serious problem for many organizations. It often proves difficult to square current methods of financial control with the basic principles of agile product development. In this paper, we will show you how to adopt a budgeting approach that aligns important financial control goals with agile working principles.
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The rise of agile workflows
Although the umbrella term “agile” is often associated with the dynamic world of software development, agile approaches have become increasingly popular with a wide variety of other organizations that need to be flexible and capable of responding to a new market and customer demands. Agile is pretty much the exact opposite of traditional approaches like the waterfall and stage-gate models. These are based on phases executed successively in a certain order and way. Agile development, on the other hand, is defined and characterized by iterations. It does not rely on predefined phases but converges towards solutions in increments. Additionally, agile approaches put a strong emphasis on self-organization, cooperation, and emergence. Agile projects do not rely on a rigid and predefined plan.
But why has the agile approach gained so many adherents and followers in recent times? The high degree of flexibility is an important part of the answer. Agile workflows allow companies to remain fully focused on the products and services that they want to launch, whilst giving development or project teams the opportunity to adapt their approach as they go. Ideally, agile development enables overall adaptation and proactive reactions to new challenges. The method even allows you to make last-moment changes to a product if unexpected environmental influences or certain market conditions demand this.
Agile and traditional finance control methods
Combining an agile approach with traditional budgeting methods often creates striking mismatches. The main reason? Agile workflows typically use relatively short (two to four weeks) “sprint” work cycles. You can adjust and optimize your backlog after every sprint, which leads to a very short control cycle. This highly flexible mode of operation contrasts sharply with timescales for traditional project management. These timescales, along with the corresponding resources and financial budgets, often cover months or even years. The discrepancy between these two essential principles of workflow planning can lead to several issues, including delays, missed opportunities, excessive cost overruns, and lost benefits.
The different starting points that govern agile workflows and traditional forms of portfolio management are another area of particular concern. “Traditional portfolio management is based on a fixed budget. You have a certain amount of money to your disposal and subsequently, select the projects that fit your budget. Choosing the right people to execute the project is the final part of the traditional portfolio management equation,” says agile PMO consultant Remco te Winkel.
In an agile environment, things work the other way around. The developmental capacity for a certain project is assumed to be fixed. You have a given number of teams that represent a given capacity within a specific project portfolio. “In an agile environment, you already have the people. This means that you bring the work to the people,” Remco explains. Benefits are related to larger themes, the so-called epics. People, organized in teams, will work on one or several epics. These epics will eventually generate benefits. Instead of adopting a fixed working order, the work at hand is carefully prioritized to generate the highest possible value at any given time. The value that an epic generates is associated with the duration of time the teams work on it. On a yearly basis, the total portfolio costs are fixed, and the generated value can differ based on your prioritization of epics to complete.
Traditional portfolio management allocates costs (people, licenses, machines) to a project. “How much does it cost?” and “does a certain spending fit within the budget?” are the principal questions. The focus is primarily on money. Traditional budget controlling generally means looking back instead of forecasting future developments. This is in direct conflict with many of the core values and principles that define agile working.
Agile budgeting primarily focuses on the outputs of a project. What is the extra value that a team, person, epic, product, or feature generates? Is my current project workforce delivering the highest possible value? These are the typical questions that you must answer when you’re dealing with an agile portfolio. Because you pretty much know what a portfolio is going to cost, an agile portfolio mainly focuses on the benefits. Hence, in an agile environment, you are steering based on benefits rather than expenses. Controllers who are used to traditional methods of finance control often find it difficult to grasp these important principles of the agile concept.
Practical financial control problems in an agile environment
The aforementioned discrepancies between traditional methods of financial control and agile workflows lead to several practical problems. Let’s take a look at the most important and recurring ones.
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There are ways to overcome project control challenges and successfully align smart budgeting methods with agile workflows. Download the free white paper now to get a better financial grip on agile projects.
“ROI through good project controls targets 5%-10% savings in CAPEX spendings.”
Delivering with Confidence, Deloitte
“Identifying project benefits lets the organizations gain focus and assign resources to the best projects. It’s the way organizations increase their value.”
TheStrategic Impact of Projects, PMI
“Organizations are 20% less likely to deliver projects successfully without a single source for performance data.”
2019 Project ControlsSurvey Report, LOGIKAL ProjectIntelligence