Agile Project Budgeting

Agile Project Budgeting

THE PROBLEM WITH TRADITIONAL PROJECT BUDGETING
Traditional project budgeting uses a bottom-up approach that requires a forecast of all involved tasks for the entire project development process and estimates of their corresponding costs and durations, all in the pre-project phase. In today’s fast-paced business world where changes represent the norm and few things are predictable, this approach has resulted in ineffective project budgets.

AGILE PROJECT BUDGETING
Agile project budgeting is created by combining both a top-down approach and a bottom up approach. A top-down approach is applied by management to set up a budget pocket for each group of projects (i.e. a project category) for a fixed period of time (such as 3 months or 6 months). A bottom-up approach is applied by project teams to detail tasks in their projects for fairly short time boxes (such as 2 weeks per iteration and 2 months per increments) when realistic cost and schedule estimates are possible.
As long as the budget pocket isn’t breached, the project teams are free to allocate resources (cost and time) to where and when they are needed and to re-allocate the resources to accommodate the inevitable changes during the entire project development process. The goal is to maximize value delivery by aiming at higher quality of deliverables for the customers.

IMPLEMENT AGILE PROJECT BUDGETING IN 3 STEPS

Step 1. Establish budget limits for project portfolios
Define a budget limit for each value creating business line (or product line) for a fixed period of time, such as a trimester (or 6 months). And all the projects in this business line are managed as one project portfolio.
Step 2. Set up budget pockets for project categories
Divide each project portfolio into different categories based on the projects’ nature (e.g. IT projects, or marketing projects, etc.). Each of such category is given a proportion of the portfolio budget limit as its budget pocket for the trimester.
Step 3. Allocate resources to each project based on real capacity and time-boxes
Each project in each category is divided into time boxes of increments (e.g. 2 months per increment) and each increment further cut into smaller time boxes of iterations (e.g. 2 weeks per iteration) along the project time line. Then within the same category, the project teams are free to allocate and re-allocate required resources to the time boxes (increments and iterations) within their project or between the projects of that same category to accommodate changes when projects progress, as long as it’s within the category budget pocket.

Source:
Collet, B. (2017, Oct. 23). "How Traditional Budgeting Kills Agility", retrieved from brunocollet.com/post/how-traditional-budgeting-kills-agility.