The problem with funding in the context of business agility

Typically, when organisations adopt Agile, they focus on the IT teams and specifically only the software development teams. This causes local optimisation and global sub optimisation and does not consider the entire system in which the solution, product or service needs to be built. The implication of this is that the way in which an initiative is funded (collaboration of cost centres and the associated bureaucracy) results in the agility (efficiency and adaptability) of the project being compromised, thereby forfeiting the value that business agility can bring.

Budgeting is necessary, but can often be optimised to better support business agility 

Traditional approaches to budgeting and budget forecasts focuses on optimising for full resource utilisation, rather than the delivery of value. Moreover, this type of approach makes commitments regarding time, funds and resources when the cone of uncertainty is at its highest (often months before the commencement of a project). How are organisations going to achieve business agility if it takes too long to get a business case and funding allocated for an important initiative? Also, a fixed budget means that there is very little adaptability (Agility) if there is a change in scope or deadline requirements.

Therefore, for organisations to benefit optimally from agile practices, they need to look at eliminating waste up and down the value stream, which necessitates the consideration of alternative approaches to budgeting that are more agile-friendly. These alternative approaches do exist and are worth exploring.

For agile projects to work companies need to fund these projects in an agile manner 

Now that the organisation has agreed on the Capex and Opex budget, business units (or value streams) need to decide on how and when to spend that budget. Rather than traditional approaches to the funding of initiatives, there are other, more agile-friendly, approaches. One example of this is Value Stream Funding. Using this approach, organisations initially organise around value, rather than separate business units that foster siloed thinking and internal competition at the detriment of the customer. This means that once we understand the total amount available for Capex and Opex budgets, we then allocate the budget depending on the prioritisation of the value stream that provides the most value to the customer. Various other funding approaches, which support business agility, exist and are worth exploring.

Similarly, there are alternative approaches to traditional contracting in the context of a project or initiative, which businesses should consider if they are to optimise the outcomes of agile and lean practices.

I am no finance expert and I am sure that there are many things to consider in the process of budgeting and project funding. We are conducting a research study and looking for CFO's or similar that can provide 30 minutes of their time in unpacking this complex topic. If you have the time, please reach out to me via LinkedIn