Why big-bang budgeting model should change – part 1

Many organizations set up the budgeting model for the big project. Each business initiative will need to apply for the budget with the estimate before they can organize a team to work on it. This may be the most common budgeting model across many organizations. And, it’s also the root cause of many organizational problems.

First, it may cause huge waste to the organization.To estimate the budget for a large initiative, the team must get more details about the requirements. This will lead to the big upfront requirement analysis work. It will take a couple of weeks or months and involve many people. But because the idea is still at the early stage, the details actually include many assumptions what are highly possible to change in the future. So, it’s risky to make a big decision on those assumptions without further validation. That’s why many projects wasted large amount of money and failed to deliver the real value to the customers.

Second, this budgeting model may set wrong expectations to the team what will be harmful to the team’s morale. The below diagram provides a systematic view of how that could happen.

cld for funding model.png

The diagram shows that:

  • Large project-based funding model will drive the business to expect to realize everything in one project. It will potentially require a large amount of budget what will increase the difficulties to get approval.
  • When the project’s big estimate has been challenged, the team’s pressure of changing estimate will increase and the team may feel untrusted what will damage the team’s morale.
  • If the smaller estimate is approved, the expectation of the team’s velocity will also set up implicitly. When the actual velocity is slower than that expectation, the team’s pressure of being faster will increase. If the pressure increases continuously, to the point, the team will struggle to survive rather than to succeed. The quality will be sacrificed. And it will finally impact the business value what will cause many wastes.

Those are all common behaviors in different organizations. Everyone who has been involved in that situation will feel suffer and stressful. Everyone will just want get out it. It’s harmful to the long-term development.

Besides the above two reasons of why the big-project-based budgeting model is unhelpful to the organization’s business agility, there’s another financial reason. I will continue to explain it in the next blog.

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