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Module 3: Financial Management to Support Business Agility

Unit 1: Pitfalls of Classic Financial Management

Budgeting is important, we need to do it. However, some of the associated practices are driving waste and increased costs.

Conflation of the budget with:

The Budget process should be about const control. The length of your planning and review cycles will depend on many different factors. Regardless of what you choose, remember not to conflate the budget with these other activities.

Performance Management - Using how well one adheres to the approved budget as an indicator of performance is the most destructive misuse of the budgeting process. Although it is important to keep an eye on costs, the best performance comes with an ability to recognize if that expense is actually delivering value and adjusting expenditure as needed to continue to deliver value.

Unit 2: Alternative Funding Models

What do you use instead of an annual budget model?

Think about reducing risks by making less expensive, more frequent funding decisions based on a series of experiments, or product that is actually in use. This can provide better data on which to base decisions and more importantly, stop further development on products or services that are not delivering expected value.

Use a sliding scale for funding that adjusts oversight and approvals on relative risk and ability to deliver working software that delivers measurable value. Th less you know about the product, the greater the risk in funding. As complexity increases, so do the risks, but it takes longer to work through problems ad deliver working solutions.

Sample funding models based on complexity and what you know

Sample funding models based on product lifecycle phase

Unit 3: Making Business Decisions, Not Budget Decisions

On budget does not equal high performance, success or value.

On organizing projects and work based on funding source: Capitol vs Operating Expenses. This is an accounting problem, figure it out with accountants, but don’t let it force you into a way of working that creates functional silos, complex communication, and excessive reporting on where people are spending their time.

How to get to business decisions:

Funding vs business decisions

Making financial sense of work

Reducing waste does not mean cutting costs. Although one can lead to another, it isn’t always true. Cutting costs in some areas may actually increase costs and waste in other ares. Reducing waste involves taking an end to end view of the work being performed and creating a continuous flow of the work with reduced wait times, reduced rework and failure demand, and improved customer satisfaction.

Unit 4: Rolling It Up - Keeping Everyone Going in the Same Direction

Managing and controlling costs is still critical to all organizations’ success. We need to keep doing this.

Tract trends of your financial metrics over time, relating them to business activity, product and services.

Create faster feedback loops - adjust accordingly.

Focus on what you know - in shorter period of time - use placeholders for what you know about and continue to seek information on what you don’t know. When opportunities for improving revenues and services at a reasonable cost are presented, divert resources from less valuable work. in other words, stop doing work that doesn’t create value for your organization.

Beware you don’t land up just recreating the annual budget process, only 4 times a year instead of once. Without dynamic resource allocation and team autonomy to determine the best way to achieve goals, changing to quarterly or monthly rolling forecasts just create more waste.

Financial Reporting

Compare products and services using common measures throughout the organization

Use the balanced scorecard: it’s not just about controlling costs. Measures and metrics should provide information to answer the following questions:

Award performance over the long term, not financial management skills.

Performance does not include:

Remember to compete with competitors, not amongst yourselves.

Award at an organizational level, not the individual level. Performance rewards that are delivered to all levels of the organization are more motivating that those that focus on top executive and senior management.

References and Further Reading

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