Should Utilities adopt Agile-Lean Budgeting Methods?

Utilities have long approached IT project budgeting and delivery in a similar fashion to how asset purchases are treated.  In our experience, most follow a structured budgeting process whereby candidate IT projects are identified and prioritized in Q3/Q4, with budget allocated for the following year out of the IT Capital budget. The planning activity is largely supported by the “IT Liaison” or “IT Demand Manager” who works with the business during this planning period to understand the needs of the business in terms of new applications, business capability, system integration, etc. IT/OT Projects are defined and scoped through a structured phase gate processes (i.e. waterfall) and launched early in the new year with governance, status reporting and benefits, all known and communicated.

Although this approach may appear and sound practical, logical and well executed – it is almost universal that the “Business” never get what they really needed (even if it’s what they asked for) or they get it long after promised; and so IT is seen as unable to listen, respond or deliver to the needs of the business in a timely manner. Neither IT nor the Business are satisfied with the outcomes, with knock on effects to customers, regulators, shareholders, etc. With increasing complexity of the IT/OT technology environments at Utilities, as they move to adopt Next Generation Utility capabilities, there is even more pressure to deliver quickly and with maximum benefit.

So how can a Utility adopt more ‘agile’ methods in order to optimize their IT Capital Budget such that it delivers more significant value to the business, allows for funds to be more easily re-directed toward high-value projects or capability, without requiring IT or the Business to stick to the yearly planning cycle?   That’s right, adopt and embed Lean-Agile Budgeting methods.

We have been helping our clients adopt these methods, such as the Scaled Agile Framework, which introduces the concept of Lean-Agile Budgeting.  This approach recommends that enterprises fund “value streams” rather than individual projects. This approach allows an enterprise to move their investment to where the value or opportunity is greatest with more flexibility. If funding is tied at the project level then organizations often do not have the ability to keep pace with changing priorities as resources and budgets tend to be fixed for the period of the project. To change direction, you need to move resources and budget with all the overhead, governance and delay that this involves. 

In our experience, we have seen the adoption of Lean-Agile Budgeting overcome the traditional shortcomings, for instance:

• Delivery teams that are long lived, working together for extended periods of time with a continuous flow of work that s ‘brought to the team’ – this brings increased productivity by avoiding the stops and starts inherent in project based funding as teams are assembled and budget is gathered and allocated.
• Delegated authority to a content authority at the delivery coal face within the value stream, who prioritizes and ensures the right things are being built, based on economic reasoning. This enables rapid decision making and a seamless change of direction and focus when changing priorities require it.
• A budget that still has all the required controls as in most cases resource costs are fixed within an increment of time (generally 10 weeks). Therefore it is easy for stakeholders to see the upcoming spend for that period and to be assured via the content authority that the highest priority work is being addressed.
• A break with the annual budget allocation cycle as budget decisions can be reviewed several times a year with investment being moved between Value Streams to reflect changing market, technology or regulatory priorities.

We have seen this work, for instance at a Global Pharmaceutical client who we are helping adopt the Scaled Agile Framework and Lean-Agile budgeting across its $200MM change portfolio. In a highly regulated environment, not dissimilar to Investor-owned-Utilities, they are seeing significantly faster time to value delivery, reduced team sizes and improved quality. We recognize the challenges of a regulated environment whereby Utilities are seeking recovery via rate cases but these are not insurmountable.

In our view, it is time for more Utilities to explore the opportunity (some already are of course) presented as they seek to transform all aspects of their business into a genuine Next Generation Utility.

Contributors: Justine Johnston, Nick Paul, Stephen Kerr, Sam Bunting