How do you manage digital transformation and innovation risks in budgeting?

2 Adopt a flexible and iterative approach

Digital transformation and innovation are not linear or predictable processes. They require constant testing, learning, and adapting to changing customer feedback, market trends, and technological developments. Therefore, your budgeting and forecasting process should also be flexible and iterative, allowing you to adjust your assumptions, goals, and plans as you go along. For example, you can use rolling forecasts instead of annual budgets, which enable you to update your projections more frequently and incorporate new information and insights. You can also use agile budgeting methods, such as zero-based budgeting or beyond budgeting, which empower your teams to make decisions based on customer value and outcomes rather than fixed targets and rules.

3 Manage your portfolio of initiatives

Digital transformation and innovation involve a portfolio of initiatives that vary in terms of scope, scale, complexity, and risk. Some may be incremental improvements or enhancements, while others may be radical or disruptive innovations that create new markets or business models. Therefore, you need to manage your portfolio of initiatives strategically and balance your risk-reward trade-offs. For example, you can use tools such as the innovation matrix or the risk matrix to classify your initiatives according to their potential impact and uncertainty and allocate your budget accordingly. You can also use tools such as the stage-gate model or the lean startup method to monitor and evaluate the progress and performance of your initiatives and decide whether to continue, pivot, or kill them.

4 Involve your stakeholders

Digital transformation and innovation require the involvement and buy-in of various stakeholders, both internal and external, who may have different perspectives, expectations, and interests. Therefore, you need to communicate and collaborate with your stakeholders effectively and transparently throughout your budgeting and forecasting process. For example, you can use tools such as the stakeholder map or the RACI matrix to identify and engage your key stakeholders and define their roles and responsibilities. You can also use tools such as the balanced scorecard or the OKR framework to align your stakeholders on your vision, goals, and metrics and track your progress and results.

5 Learn from your failures

Digital transformation and innovation involve a lot of trial and error and learning from failures. Therefore, you need to embrace a growth mindset and a culture of learning and feedback in your budgeting and forecasting process. For example, you can use tools such as the after-action review or the post-mortem analysis to reflect on your successes and failures and identify the root causes, lessons learned, and action items. You can also use tools such as the feedback loop or the retrospective meeting to solicit and incorporate feedback from your stakeholders and improve your processes and outcomes.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?