Consider two companies –
Both have an annual budget for product development but they differ in how they manage and monitor their spend against that budget.
One divides and allocates that money across the highest value projects and then resources them accordingly. It tracks spending against project budgets by a time-recording system. When, inevitably, costs increase, the project board report to the budget holders and ask for more money. Each time it happens, many people are involved in arguing the business case for their pet projects and perhaps some projects are wastefully halted – before any benefits can be realised – to provide additional funds. This approach is common.
The other relates its budget directly to its headcount and flexes that according to the money available. In other words budgeting is done at the macro – the portfolio – level. Provided the duration and the team size does not change significantly, there is only one reason to track individual costs against specific pieces of work. And that is to understand the relative cost of specific work items. And I see little benefit in doing that on a monetary basis.
This approach ensures that, at the portfolio level, the budget cannot be exceeded, since it is based on headcount.
It also alleviates the burdensome administration associated with time recording; and let’s face it, that is never accurate, is it?
It has other benefits too. People are not constrained to working on only what the system ‘authorises’ them to work on and they don’t need to do any dodgy accounting to please the bean counters. All they need to do is their jobs.
It provides the flexibility to re-allocate people as and when required whenever priorities change.
There is just one proviso. When each business case is presented for approval, there needs to be a realistic estimate of the benefits. And I have seen some that are far from realistic. Obviously, if the anticipated benefits do not outweigh the expected costs by a significant margin, the project should not get approval in the first place.
Governance in an agile enterprise.