Leaner Budgets, Higher Returns

Have you ever been in a situation where the overhead of assigning project budgets and people became as challenging as delivering the actual products?

For many years I was resigned to seeing this as just another part of project or program leadership, and something to be factored into plans.

What do I mean?

A team might be made up of 10 people from 6 different departments. They all need to work on a project, however the various departments need to cross-charge to the project for the respective team members to even start work.

The same complexity might occur when buying a solution or working with suppliers. Multiple internal teams have to be involved to agree the cost.

In addition, siloed projects have to keep going back to their respective boards to seek more funding to deliver the next stage. These decision-making authorities can meet infrequently, which may result in the overall work taking longer than it should. This constrained budgeting approach can exist in both agile or not-so-agile environments.

What other challenges can traditional “project budgeting” bring?

• The cross-charging process between departments always reminds you that you’re not really a team, because you belong to a different internal organisations that have to charge each other for their people.

• There can be a lot of stop-start, e.g. waiting for funding approvals and people to on-board, before work starts or resumes.

• When someone is utilised more than the agreed and funded amount, their respective departments could make life difficult for the project team. Conversely if they appear to be temporarily underutilised, they may be taken away from the project altogether.

• There is a tendency to need to justify what the spend will be focussed on early on, before the funding is released. Such levels of granularity are time consuming to provide up-front and usually never accurate.

• Traditional budgets are often set annually and can be difficult to adjust when circumstances change.

• Focus on inputs rather than outcomes: Traditional budgeting often emphasises resource allocation rather than the value delivered.

Learn AI in 5 Minutes a Day

AI Tool Report is one of the fastest-growing and most respected newsletters in the world, with over 550,000 readers from companies like OpenAI, Nvidia, Meta, Microsoft, and more.

Our research team spends hundreds of hours a week summarizing the latest news, and finding you the best opportunities to save time and earn more using AI.

Sign up with 1-Click

Value Streams

A key basis for a lean budget is that it’s based on delivering value streams, rather than projects. A value stream can be seen as a way to organise groups of work to deliver on clear, related business outcomes.

A value stream can hold it’s own budget to fund outcomes and enable delivery teams to have the funding and autonomy they need to work with minimal intervention and processes.

This approach can unleash a significant amount of productivity, creativity and value creation, whilst reducing the typical overheads experienced with stage-gated or departmental funding setups.

What are the benefits of lean budgeting?

• Flexibility: Allows for quick adjustments based on changing priorities or market conditions. Investment can more easily be pivoted from one team to another, if a new opportunity is seen to be more valuable. Under more traditional funding approaches, by the time funding has been reallocated, the opportunity may have been missed.

• Reduced waste: Focuses on funding value-driven initiatives rather than pre-defined projects.

• Continuous delivery: Enables ongoing delivery of value rather than waiting for large project completions.

• Better alignment with strategy: Ensures resources are allocated to strategic priorities swiftly.

• Improved responsiveness: Allows organisations to react quickly to new opportunities or threats.

Example:

• Traditional: A manufacturer allocates $15 million for a two-year project to develop a new product line. This budget eventually increases in order to deliver the product line expected. Further cost is also needed to ensure the product line is up-to-date with the latest technology advancements at the point of launch.

• Lean: The company funds cross-functional teams with monthly budgets, allowing them to iterate on product designs and pivot based on customer feedback and market research. They delivered the products that their customers wanted, excluded features that provided lower value, and saw customer benefits earlier.

The Scaled Agile Framework suggests guiding principles that help teams to manage lean budgets efficiently and effectively. These principles are known as guardrails and fall into the following categories:

Horizon planning:

Assigning different levels of budgets based on how far away the value is expected to be realised, and the level of certainty of the outcomes.

• Horizon 3 could involve evaluating longer term opportunities with a proof of concept.

• Horizon 2 could be investing in emerging technology that will create value in 1-2 years.

• Horizon 1 could be investing in something to unlock immediate value, or reducing spend on something that is already working and needs less investment to keep working.

• Horizon 0 could be decommissioning a system that is reaching end of life.

Capacity allocation

• Ensuring the right mix of time and effort applied to different types of change. for example a stream of work could apply 60% to managing technical debt, wheres other types of work could collectively make up the remaining 40%. Each % allocation will be different depending on team priorities.

• Having a good view of capacity allocation also creates more informed utilisation of people and budget. Reviewing this periodically will help to ensure the right priorities are continually being worked on.

Approving significant initiatives

• Setting a funding threshold can help keep momentum for the majority of work in scope. If the cost to deliver certain epics or work packages are above the threshold, a different level of approval filter can be applied, which can involve extra rigour, e.g. a large contract to be signed with a new supplier requires more due diligence than a small team of in-house developers and designers.

• This threshold approach protects funds but also gives empowerment to teams whose budget does not need extensive control.

Continuous business owner engagement

Business owners responsible for the outcomes delivered by the work must be actively engaged.

This extends to prioritisation decisions, ensuring the most valuable change is worked on, assigning business value in the first place, and ensuring the work is of the right quality.

Other types of controls I would also suggest:

• Actively looking at dependencies within the organisation, which could slow down work, or even cause it to no longer be required. Capturing and acting on this early protects time and money.

• Validating the market: Continuing to assess whether products due to be launched are actually required by the users, and still expected to reap the intended benefits.

• Reviewing the strategy, and confirming if the intended work actually contributes towards it, so that a return on investment is more likely.

There are many examples of where budgeting has gone wrong, leading to poorly made investment decisions, often taking too long to make and leading to wasted investments.

One of the biggest examples is Boeing’s Airbus A380 project.

Boeing invested more than $30 billion developing a large aircraft, believing it would revolutionise the aviation industry and supersede its highly successful 747.

This investment did not provide the expected value, as sales fell far short of expectations.

The team failed to consider the cost to airlines or airports making adjustments to the airports, to fit the super sized jets.

The cost to fill up the plane with fuel was so high, that the plane would need to be at high capacity for each trip to be cost effective for airlines.

Boeing also faced technical issues, causing some of the fleet to be grounded, and eventually, the aircraft was prematurely discontinued.

Whilst more traditional budget management approaches can be valuable in projects of this scale, there are some lean budgeting considerations they could have taken to avoid the wasted investment.

1. Market Research during horizon planning: More comprehensive market analysis, including surveys of airlines and airports, could have revealed potential obstacles and helped to more accurately tailor the product to actual or emerging market needs.

2. Scenario Planning: The added investment required from airports to ensure they could fit such a large aircraft, should certainly have been identified and considered before investing so heavily in the project. Boeing may have been able to pivot and develop a smaller aircraft that was still large by general standards, whilst maintaining a long haul capability and meeting airport logistical needs.

Many of the largest hyper scalers are investing ahead on AI compute power, to get ahead and stay ahead of the competition.

Whilst the actual use cases of the GPUs is not always fully known, AI is moving so fast that it’s seen as imperative to start investing big today, or risk being left behind.

Here are some of the latest moves from well known businesses. Their funding approaches could fall into the category of Horizon 2, or Horizon 1 investment guardrails depending on how soon each business aims to make commercial use of their investments.

• Mark Zuckerberg flexes that Meta’s cluster of Nvidia H100 chips is bigger than the competition’s

• Elon Musk set to invest US$10 billion in AI this year

• Just four companies are hoarding tens of billions of dollars worth of Nvidia GPU chips

• VC firms are stocking up on Nvdia A.I. chips to win deals amid GPU shortage