If you're planning to increase your organization's agility, you can't avoid modernizing your financial processes. The reason being is that scaled agile practices and traditional cost accounting are not compatible. As challenging as change may seem at first, its rewards can be plentiful. Let's take an introductory look at precisely what agile financial planning looks like.
Traditional versus agile budgeting
In a large, classically organized company, financial planning often looks like this: The business units present their plans on a project basis to management once a year. Management then estimates the costs and time scope of the individual projects and prioritizes them. This takes a lot of time and therefore costs a lot of money. Financial allocation is rigid and largely unchangeable.
Agile financial planning is entirely different. It does away with the planning and budgeting of temporary projects. Instead, existing product teams are financed for the long term, and they then independently make product decisions that fit their needs. The mixture of responsibility and flexibility promotes innovation, both in the individual teams and in the company as a whole.
| Traditional Budgeting | Lean Budgeting |
|---|---|
| Financing of projects | Financing of teams or products |
| Accurate planning is an important requirement | There is room for uncertainty |
| Tracking of operating expenses at the project level | No project budgets, no tracking of operating expenses at the project level |
| Fixed Budgets | Rolling budgets |
| Labor-intensive annual funding process | Continuous portfolio reviews (quarterly, bi-monthly, or monthly) |
| Resource maximization to near 100 percent | 80 percent resource utilization |
| People can't move between projects without escalation to management. Projects are delayed because of skill shortages. | Teams are composed of people who bring the skills that fit the tasks. Whenever priorities change, members can organize themselves and move on to the most important work. |
Agile budgeting affects the entire organization
Reimagining financial planning is not a question of individual departments or teams, but it affects the entire organization. In order to mature into a financially agile organization with a product focus instead of a project focus, some important things need to happen first.
Specifically, at the executive level, close collaboration between technical leadership and financial management is very important. CIOs support CFOs on agile funding and make recommendations, after which IT leadership allocates and tracks funding. At lower hierarchical levels, portfolio managers promote the organizational and financial agile principles, make investment decisions, and balance budgets between programs. Program managers, in turn, ensure work is tied to the right initiatives and track timelines and product features.
On the other hand, as mentioned earlier, the impact of agile budgeting at the team level is to fund and strengthen long-term product teams that are empowered to make their own product decisions and respond independently to change and uncertainty. For individual team members, the focus is no longer on timesheets and work packages but on striving to create value for customers and the company.
Above all are the customers' needs: they are continuously collected and analyzed, driving research, development and funding.
Implementing agile financial planning
Such a budgeting structure holds great potential and opens new doors. The shift towards agile financial planning is significant and impacts the entire company. Therefore, good preparation is incredibly important for the success of this endeavor. One deciding factor is successful cooperation between IT and Finance departments, together with clearly communicated expectations.
To avoid too high expectations, it can make sense to implement agile financial planning for a single product first and get to grips with the matter that way: when it comes to financial planning, an evolution is often a better approach than a revolution.
Ultimately, the entire organization will benefit from modernized financial management at all levels:
- The company avoids the undesirable effect of traditional financial planning: organizational rigidity. Agile financial planning is an approach to address the uncertainty inherent in agile software development. It encourages innovation without sacrificing accuracy.
- Instead of working with budget definitions that won't matter anymore a few months later, product teams make decisions based on changing priorities, market conditions and customer needs. Team members have the freedom to focus on the most important work without impacting budgets.
- Because costs are not tracked at the project level, unnecessary overhead and bureaucracy in planning cycles are reduced. Teams do not have to spend time tracking their working hours or the amount of resources allocated to projects.
- The product and portfolio teams are empowered to work in service of business goals and operate in a working environment based on trust.
For the evolution towards agile financial planning, Atlassian's Jira Align provides suitable software support specifically for the corporate environment. With this feature-rich suite for framework-independent agile scaling, a bridge can be built between IT and finance, laying the foundation for a sustainable realization of agile financial planning.
Do you want to know more about the software-supported implementation of SAFe, LeSS or other scaling models in large companies? We would be happy to discuss your requirements for an enterprise-wide agile product development and product management system and demonstrate the capabilities of Jira Align in a personal session. Get in touch with us!
Further Reading
- Get to know Jira Align for project management
- SAFe vs Spotify
- SAFe Implementation Roadmap Part 1: Getting started and reaching the tipping point
