Will Scrum change the way you do your yearly budget?

Let’s assume the following (unfortunately real) situation:

You are IT-manager with budget responsibility. In Q2 2013 you are asked to provide your initial budget numbers for the planning of 2014. You are lucky as you have heard some rumors about new product ideas and you have a number of concrete improvement proposals to some of your products.

BUT … how much will this cost – feels familiar?

Ok, so here is what many of us do and did:

  • take the previous year numbers and add a few percent – leaves room to negotiate the cut (Lächeln)
  • estimate the size of the (unknown) product idea, compare to previous projects/product ideas and select a reasonable number
  • take the concrete improvement proposals and guess out of your experience or discuss with your team

and here an example, what not so many of us still do:

  • budget for a pre-project to analyse the requirements of the „unknown“ and shift implementation to 2015 (traurig)

And how would you do it with SCRUM?

Solution 1 (likely in organisations new to Scrum):

  • take the previous year numbers and … see above
  • estimate the size of the (unknown) product idea, … see above
  • for the improvement proposals you already have your estimate and prioritization due to regular estimation meetings (get the number from your PO and Scrum Masters)

Solution 2 (likely in organisation already having solid Scrum experience on all levels):

  • for the improvement proposals you already have your estimate and prioritization due to regular estimation meetings – DONE (Daumen hoch)
  • for the „unknown“ you go back to the rumor owner (guess this is your customer, your product management or your PO) and ask how much the product idea is worth (how much are they willing to spend for it) – take the number – this is your budget! You are DONE (Daumen hoch)

Solution 3 (totally agile organisation):

  • did not have the pleasure to see this … but would be very interested

And why would this work in an organisation having solid Scrum experience?

A Product Owner is responsible for the ROI against the customer. So whenever a customer provides money for a specific product idea the PO has to deliver best return for this investment. PO’s know, that Scrum ensures, that the highest Business Value is implemented first . They also know the need to fail fast (save money).

Customers (often on C-level or close to it) have a broader view on the product ideas and related investments throughout the company. They have a clear picture on the (possible) investment volume for the coming year, they can agree on consolidated level on priorities of product ideas and on related investment volumes.

So what would the customers do?

  • They create investment areas/themes (i.e. risk management, product development, sales enforcement, steering improvements …).
  • They define an overall investment volume.
  • They define the share of this volume for each investment area/theme.
  • They hand over to responsible managers and empower those to develop the area/theme in a way providing the most economic and business value for the company

Let’s have a small graph to show what is meant:

Replace the break down with whatever structure is needed for your organisation.

During the year 2013 and also 2014 the product ideas will get more specific, a product backlog will grow and you will gain more and more security regarding real requirements and release contents/dates.

Please be aware that you still will get questions regarding (rough) cost of product ideas – feel free to give feedback according to your experience, but always make clear, that this is no committed number!

 

So – will it change the way you budget? Will you start rethinking your budgeting approach in the organisation? Are you already doing it like described or similar?

Let me know!!

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