Why big-bang budgeting model should change – part 2

In my previous article, I discussed two reasons of why the big-bang budgeting model should change. This blog, I like to have further discussion about it from another view.

Before getting into details, I like to share a simulation what I created in InsightMaker.

buget-model-simulation-1.png
Figure 1 – Simulation Setup

This simulation is trying to see the difference between funding business initiatives based on small size and big size. Like the Figure 1 is showing:

  • The estimated budget depends on the estimated size and the unit price of the work.
  • The total budget will reduce if the estimated budget is divided.
  • If the budget is approved, then the total size of the backlog will increase with the estimated size.
  • And the total size of the backlog will also decrease the size of the completed work what is the velocity.

To simulate the way of the different funding model, I set the estimated size as 500 to simulate the big initiative and 100 to simulate the small initiative. The simulation time period is 12 months. And the velocity is always 40. The results are shown in Figure 2 & 3.

Figure 2 – Simulation Result (Estimated size = 500)
Figure 3 – Simulation Result (Estimated size = 100)

Compare the results:

Estimate Size = 500 Estimate Size = 100
When are there no enough budget to support more initiative? The 9th month Still have about $7,500 left in the budget stock
The total undone work in the backlog 4060 760
The total done work 440 440

So, as the comparison of results discovered, the big-bang budgeting model will lead to more undone work what is the WIP. And also it will run out of money much quicker. Imaging there is a very important business initiative needs to implement after the 9th month, what can the organization do? They need to add more money. Also, because all the development teams are busy on the previous initiatives, there are no enough people to work on the new one. So, the organization may need to hire more people, or, they need to ask the existing teams to work on multiple products. This is exactly what is happening in many organizations. You can see how many potential wastes can generate by this model.

How to escape? Try to sponsor the initiatives with small size in short cycle. Rather than set up budget plan annually, try to set it up quarterly, monthly, etc. Try to change the mindset from funding the projects to the teams. There are many alternative ways to support business activities from the financial perspective. Try to be more innovative and to focus on the whole system optimization!

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