Impacts of traditional project funding models on agile delivery

In one of my previous articles I’d written about the need for change across multiple areas of an organization when undertaking an agile transformation. A key enterprise partner is the Finance department and the organization’s model for project funding will have significant influence over successful agile delivery.

Traditional project funding models are anchored to periodic (annual, semi-annual or quarterly) portfolio re-planning exercises which ingest updated forecasts for active investments and funding requests for new ones. The funding approach for an investment might be one time lump sum, split into two pieces (e.g. seed and remaining), or progressive through the use of funding tranches.

The challenge with all of these funding approaches is that they are based on an estimated cost of a project rather than the funding we wish to allocate to a product, capability or service.

So what challenges arise from a project-centric funding model?

It can result in higher risk, premature financial commitments.

Even in those cases where a funding tranche approach is used, the expectation is that the estimate for the current funding request will be at a high level of confidence. Now nothing prevents project teams from requesting a minimal amount of funding (e.g. one sprint’s worth), but in most cases, project funding approval processes are not lean enough to encourage such behavior. Given this, teams choose to make a funding commitment tied to a major milestone such as a release which might span multiple sprints worth of work. The danger in this is that unless we have a long lived team with predictable velocity working on a well understood product, the level of confidence in the work to be done and how complex that work is will drop the further out we go resulting in a team being at risk of a cost overrun.

Now you might say that agile delivery approaches can work when we fix cost and time and let scope or requirements be the variable. This is true, but how do we know how much to budget up-front to be confident in meeting business needs?

It can also encourage sloppy product management.

When product owners receive funding for a single project and don’t have any guarantees that they will receive funding for follow-on work, it is tempting to throw everything and the kitchen sink into the project backlog and to procrastinate on making tough prioritization decisions. With product-centric funding, the product owner can effectively prioritize the product backlog with confidence that there is available funding for incremental evolution of the product’s capabilities.

Moving from a project-based to a product-based funding model is a challenging people, process & technology change, but will be a powerful accelerator for your agile transformation.