Finance CAN be Agile Friendly...

What will it take to get Agile-friendly finance models in corporations?

This is the question that Khali Young asked Dan Prager , and which was blogged on at Agile Jitsu. My input was too long - so i wrote this article to get it all in!

If you’re asking ‘what will it take’ then from my perspective……

I am assuming for this purpose we are only referring to the investment funding models, and not overall financial governance and reporting operating models that run Business As Usual work.

To kill the first myth, everyone involved in your typical annual planning cycle feels the pain. No-one likes it. Wether they want the money, they want the outcomes, the rely on the money to fund their teams, or they are responsible to see it spent wisely and generate the returns that are promised. 

Plans take months to finalise, they are hard to change given the complex interdependent parts, they rely on the business actually having the money available (often this amount changes mid planning and mid cycle and the flow on effect is damaging to all activity and moral). I don’t think the annual corporate funding model has ever worked ‘acceptably well” - its just the fear of the unknown prevents really drastically changing it. Plus the fact that the status quo process has been hard coded and linked to legacy based, hard coded GL systems which no one wants to touch, and changing them to be more dynamic are expensive, time consuming programs themselves. The annual funding cycle that many organisations employee actually impacts every part of the organistion - in some way. In my view if you want to change the way a company runs to truly move to enterprise agility, start with this - it's the biggest pain point, has the biggest impact and visibility of change, and everyone will want to help you do it differently! 

There's some interesting issues at play in the investment funning model that need to be considered to help change the way we fund initiatives - these are but a few that spring to mind: 

• corporates needing longer lead times than short start up cycle runways is often related to resource allocation. People. There is generally no slack in teams or in house bench - thats sub optimal to teams measured by capacity utilisation as a proxy for efficiency. So new initiatives even if they seem beneficial and logical just can’t start. 
• continuing the people theme, effectively you need to fund a fixed team to be on stand by to test an experiment with ideas in shortened time frames. Think innovation labs. Many are funding these labs and using them as proxies for project funded work to test ideas instead of go through the standard project funding process. The problem then becomes reintegrating the tested ideas back into the funding system - not sure I’ve seen the solved yet. No BU wants to fund a team that ‘might not’ have work for a while as this hits their KPIs, impacts costs, becomes another team that needs to be performance reviewed, has attached bureaucracy and overheads and so on. This perspective needs to change to allow for learning and experiments to be ‘funded’ without the standard operating model applying.
• corporates are tied to annual reporting cycles - back to that idea of not knowing how much you have available even after year end. The inputs to the numbers sometimes don’t get finalised until right before year end, so theres always risk you are under or over plan which means you don’t want to commit until the last minute, and then you can’t get the people you need, and so on and so on….
• agile understanding and expertise in non tech teams is only now gaining traction - many get the need, and are starting to act, but this takes time and trust to shift towards more fixed team based funding models. Finance has traditionally had responsibility / control for the governance of the investment spend and are held to account for results, and there is a real history of tech and business being at odds over cost, estimates versus actual, the padding and non delivery that's gone on in the past. Once trust in the power of agile delivery, provided by cross functional collaborative teams with short planning cycles and visible signs of real progress starts to gain better momentum, funding models will become easier to change as results and potential value are visible. 
• different sources of funds - investment for new initiatives is often from a different budget from operations that funds the business. For different reasons. This causes confusion on responsibility, and actually is a key constraint on funding teams over programs of work. Each funding pool has different metrics and KPIs tied too it. There are conflicting goals . That has to change. If we are moving towards stable teams, we are just funding them and they select and prioritise the work.
• who owns the money? In some enterprises the sponsor gets the money but isn’t responsible for the spend of it - its ‘free’ money. This needs to change for the governance, funding and the subsequent models to change. You get investment spend, your’e accountable. Period. 
• the finance systems themselves - some are just not able to pivoted to a different way of working. This takes significant time and investment to make sure they can be, or get new ones in.

Putting these initial issues aside, some large entities though are already moving toward trialling different funding models. Quarterly increments; the need to report back outputs and outcomes each quarter; quarterly planning cycles based on proving (or disproving) assumptions that get tested each quarter and are based on longer whole of life business goals; funding experiments with a fixed number of the entire portfolio budget set aside for such; funding fixed teams in innovation labs with different metrics. Like it or love it, SAFe has done a great job at getting some of these concepts accepted at enterprise level .

I would also add that once your finance comrades (agile is a socialist theme after all) see and experience how the funding models could work using different ideas like funded teams, throughput accounting, beyond budgeting, etc, they are very fast to accept its better. And often makes life easier to manage!

Fix the system don’t blame the people…..