How to manage Agile investments in a project-dominated financial world
Agile development methods have revolutionized information technology over the last 25 to 30 years. They have increased success rates in software development, speed to market, and customer satisfaction by being fast, flexible, and responsive to customer needs. As organizations drive toward their digital transformation, there is a major push towards adopting agile to stay competitive. With easy availability to technology, agile provides an excellent framework for digital transformation because it allows enterprises to release their software at a faster pace and create powerful customer experiences. Adopting an agile approach encourages continuous innovation and enables businesses to become market leaders.
At TBMC 2019, we asked organizations how they‘re adopting agile. Almost every organization has made a significant investment in Agile application development: Sixty-seven percent are Agile enough that they consider themselves as having a hybrid portfolio of Agile & traditional projects (meaning both must be handled within their existing processes). Twenty-six percent are strategically beginning to adopt Agile. They may not yet consider themselves as hybrid in how they adapt their existing systems, but they can see it on the horizon and are planning for it now.
Meanwhile, IT finance and governance depend on financial and portfolio planning processes that assume a “project view” as the financial container for planning, with its fixed budgets, multi-year outlooks, business case templates, and 12-month annual planning timeframes. In fact, 82 percent of the organizations that have adopted Agile development still use traditional funding models. And the outlook is that they’ll continue to do so for the next several years, even as they adopt more Agile. It doesn’t always make sense to adjust company processes that work for MOST of the total budget or for just the subset, i.e. IT investment spend.
That’s bad news for finance and business leaders who are forced to struggle with prioritizing investments, delivering business value, and tracking and forecasting labor capitalization costs. They realize they need to find a way to accommodate for Agile within existing system structures. Wholesale change is not possible in the timeframe or at the speed they are adopting Agile. Most companies are using a wholly inadequate patchwork of spreadsheets, PPM, homegrown solutions, and agile and financial management tools. But these are only a stopgap measure. Organizations must still either fund with a fully project-centric finance model or completely transform to a product-centric model (which is not an easy task). And neither is likely over the next few years.
It’s a bit like teaming up a sprinter and long-distance runner for a relay race: Each athlete has targeted a different muscle type and used a unique exercise regimen to train for a specific event. Competing in something they didn’t train for is a recipe for disaster.
IT budget allocations are made on the overall product portfolio level, and usually on the financial planning scale (1,2 or even 3 years out) – not on a per-feature or per-sprint basis. The Agile PMO, Portfolio Managers and Product Managers are then allocated budgets based on CIO’s and business units’ priorities. Within that allocation, they must be given autonomy to adjust work between products and release trains on the program increment level. Most of the costs associated with application development is labor – or the cost of people doing the work. When annual plans for Agile include estimates of labor that are not tied to actual, individual resource costs, overages are the natural result. Without a singular view of Agile and project-based development, the best efforts of IT finance and PMOs often lead to cost overruns, project delays, and a misalignment of spend and business priorities.
There are no tools available to support both project and product-centric investments within a single portfolio management system—until now. Apptio’s Agile Investment Management is the first solution to provide a unified portfolio. You can support the needs of both Agile development and project-based financial planning – and transition to a fully product-centric planning and governance model.
Rather than being hobbled by the mismatch of business processes, agile PMOs and IT finance can take full advantage of Agile to optimize resources, plan the optimal mix of portfolio investments, and accelerate the delivery of value.
“Agile is one of the reasons TBM has been successful and important to us. Knowing where our money is going and being able to find out, ‘Is that the best place to spend?’ has resulted in significant savings.”
– Executive Vice President and CTO, Fortune 100 company
Learn more about Apptio Agile Investment Management.