7 Stages to

Lean Budgeting Success

 When implementing Lean-Agile practices at scale, organizations
quickly realize that their push for agility conflicts with traditional
budgeting and cost accounting practices. It’s not possible to truly
achieve organizational agility without evolving these practices.

That’s because funding practices – that is, the way budgets are
allocated throughout the organization – dictate nearly every
business outcome. They determine what work gets prioritized, how
teams are structured, and how impact is measured. Very little is
accomplished in an organization without the investment of time,
money, and people – so, it’s important to ensure the way funding
decisions are made aligns well with the business outcomes the
organization is trying to drive.

This is where Lean budgeting comes in. Adopting Lean-Agile

budgeting practices helps to decrease funding overhead and
friction, while maintaining financial governance, and aligning
budgeting practices with Lean-Agile goals.

In this guide, we’ll provide context for why Lean budgeting is

essential to Lean Portfolio Management, and then offer step-by-
step guidance you can use to successfully adopt Lean budgeting
practices in your own organization.

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 The Limitations of Annual, Project-Based Budgets
In order to truly understand how Lean budgeting can help your organization, it’s helpful to first identify the limitations of traditional budgeting systems.

Funding by Project
In annual budgeting systems, funding decisions are project-based, meaning budget is allocated on
a per-project basis. Business units present their ideas to the PMO in a 6-9 month cycle to plan the
next annual year. IT provides cost and time estimates and executives prioritize funding based on
perceived value delivery. Then, teams are formed and eventually start working. With governance
tied to an approved plan, teams are incentivized to stay on track towards delivering the agreed
upon plan and are measured according to project completion and how well they are able to stay
on budget and on time.

This structure results in deep inefficiencies across the organization:

• Project-based funding requires creating detailed plans based on difficult to make projections,
which takes time and people away from actually delivering value

• Planning on an annual basis creates a state of perpetual administrative overload, which

decreases productivity, morale, and throughput

• Organizing temporary teams around projects (moving people to the work) results in less
predictable working groups and work delivery

• Because governance is tied to an approved plan, teams are incentivized to stay on budget and
on time, instead of driving actual business outcomes or increasing customer satisfaction

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 Decision-Making and Approval Process Structure
The root of each of these issues is the way work is funded and who controls the
decision-making and approval power around funding. In traditional organizations,
this power resides with the PMO. In order to make informed decisions, the PMO
requires teams to gather requirements and data to create work plans that likely
won’t start for months. By the time the PMO receives the plan, it’s likely already out
of date.

Funding a project might require pulling from multiple cost center budgets, creating
a slow, complicated budgeting process that expects estimates, plans, and details
far before they are accurate. By the time a plan is approved, and the team begins
work, it likely already has to be updated to account for new information, changing
requirements, etc. But accounting for new information requires additional work,
meetings, and overhead – so teams are actually incentivized to not incorporate new
learnings into a revised project proposal.

Lack of Flexibility and Agility

Once budgets are approved and work is ready to start, new challenges emerge.
With project-based funding, budgets are fixed for the duration of the planned
project. These budget constraints reduce flexibility and agility, locking teams into
completing plans that may no longer be the best use of resources (time and money)
for the organization.

The people doing the work don’t have the ability to react to new information by
shifting focus and budget. In order for the team to adjust the budget, the PMO has
created heavily governed change management process to try to control the changes
in funding. In order to change the plan, they’d have to go back through a quarterly
or annual portfolio review to re-budget and re-allocate team members to the more
promising projects. Once again, the team is incentivized not to make this change –
and the organization suffers as a result.

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 The Lean-Agile Approach to Funding and Delivery
As you can see, traditional cost accounting practices are misaligned and counterintuitive to Lean-Agile delivery. Fortunately, there is a way to maintain
financial and appropriate governance while also minimizing the overhead of traditional project-based funding and cost accounting: Lean budgeting.

In Lean budgeting, fiduciaries control spending by value stream, while teams within each value stream are empowered for rapid decision-making and
flexible value delivery. Enterprises can have the best of both worlds: a value delivery process that is far more dynamic and responsive to market needs,
as well as clear visibility to and accountability of spending.

Here are the key features that distinguish the Lean-Agile approach to funding and delivery.

Funding by Value Stream

A value stream is defined as an end-to-end business process and the associated steps an organization takes to deliver customer value, or it
may refer to a line of business that delivers value, typically a product or solution, to a customer. As organizations evolve, the shape of their
value streams often evolves. For some companies, a value stream begins as a few teams organized to deliver a set or grouping of capabilities
that satisfy a customer need. For others, it is truly the end-to-end value chain, from vision to value. Regardless of how an organization is
currently defining a value stream, the purpose of organizing by value stream is generally the same: to deliver products and solutions beyond
potentially disjointed project-based delivery. By aligning work and funding to delivery, value is created and managed more effectively.

Rather than trying to fund individual projects, the Lean approach allocates budgets to value streams, with guardrails to define spending
policies, guidelines, and practices for that portfolio (more on this later). This allows for flexibility, autonomy, and speed within each value
stream, while maintaining cohesion across the portfolio.

Long-Lived, Self-Organizing Teams

Shifting to a value stream-based funding structure means that employees aren’t shuffled around from project to project or team to team,
which is highly inefficient and detrimental to morale. Instead, they organize into self-sufficient, cross-functional teams who work together to
achieve a common goal.

Organizing into value streams allows team members to:

• Align around shared, defined goals for their value stream

• Optimize funding allocations for their value stream to deliver maximum value

• Have the autonomy to pivot at the epic level eliminating the heavy change management processes around funding impacts due to
changes in delivery (freeing up management’s time for more strategic work)

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 Continuous Flow, Not Sequential Steps
Traditional (annual) budgeting and planning follows a linear structure, where plans are made
for the year and then executed, with checkpoints throughout the year to assess status. Success
within this sequential structure assumes conditions and information remain stable throughout
the year. However, in most industries, conditions are not stable: new information, competitors,
and business models can completely change the face of an industry within a matter of months.

In Lean-Agile organizations, work is planned, prioritized, and executed in a continuous flow.

Agile teams are always collecting data about the performance of their products and services,
as well as the market in which their customers operate. Teams, the value stream, and leadership
continuously monitor both internal and external conditions to evaluate whether the current
focus aligns with larger organizational goals. New proposals are discussed frequently, typically
in alignment with quarterly or mid-range planning cadences.

The continuous flow of Lean budgeting and planning includes space for incorporating new
data, feedback, and information, and pivoting plans accordingly. As plans are executed, more
data is collected about these and other ongoing initiatives to determine priorities for the near
and distant future.

Let’s dive into the seven continuous stages needed for Lean budgeting.

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 7 Stages to Lean Budgeting Success
1 Define strategic organizational goals with measurable, desired results
The first step toward adopting Lean budgeting at any scale is to define strategic organizational goals and communicate these
across the organization. What specifically are you aiming to accomplish as an organization? What industries, markets, or customer
bases are you actively looking to tap into? Equally importantly – which industries, markets, or customer bases are you actively not
looking to move into? Defining these at the portfolio level (and communicating them throughout the organization) is critical for
maintaining alignment from the bottom to the top of the organization and between value streams.

2 Create Lean business cases

With goals established, you can begin planning the work needed to achieve them. Traditionally, teams use business cases to
justify and/or prove the value of a proposed project based on its expected benefits. The purpose of writing a business case is to
scope out the work so that a centralized team of decision makers can assess its value against that of other proposed projects.
Business cases include a risk/benefit analysis, expected cost, resources needed, cost of delay, potential roadblocks, and any other
(exhaustive) information that would be helpful to the decision makers within the organization.

Once approved, traditional business cases serve as a sort of ‘blueprint’ for the project. Since business cases are typically presented
and decided upon during annual planning periods, they often rely on estimates and predictions made well in advance that become
increasingly inaccurate during execution.

These types of detailed business cases aren’t necessary in Lean budgeting. As a first step toward more continuous planning cycles,
Lean-Agile organizations use Lean business cases to make investment decisions within value streams.

Rather than serving as a detailed blueprint for how to complete a project, Lean business cases are meant to articulate the expected
results of an initiative, as well as what it will take to achieve those results. Unlike traditional business cases, Lean business cases:

• Focus less on detailing work involved in an initiative, and more on providing only the sufficient information needed to make a
go/no-go decision

• Propose work to achieve desired results that can be accomplished in shorter time increments (3-6 months, not 6-12+ months)

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 In Lean budgeting, Lean business cases are preferable to traditional business cases for two main reasons: Speed and accuracy. Lean business cases are
not centrally created and evaluated like traditional business cases, therefore, the value stream can make the decision on what to work on, when to start
the work, and other decisions related to the business cases. This means Lean business cases are less likely to become stale or inaccurate due to a faster
evaluation process and direct alignment to the value stream. As a result, the process of developing Lean business cases is inherently less wasteful.

Success with this system hinges on adapting governance at each organizational level to ensure it still fits the purpose and is appropriate: If you plan
to move to delegation of funding by value stream at the portfolio level, you need a governance process that’s appropriate for defining the size and
categorization of funding delegation or ‘buckets’, and how that information is communicated downward and outward.

At the value stream level, you need a process for prioritizing and sequencing on business case epics, the related funding allocated to the value stream,
and for holding people accountable for the outcomes within that Lean business case.

Typically, each Lean business case represents an initiative, called an epic. Epics can be a new feature or solution to an existing problem, or they can be
an architectural need or change to enable other epics to occur, called an enabler epic (for example: the implementation of a new technology required
to build a new feature in the product).

Within the value stream, teams will review the estimated ‘size’ of epics so that they can accurately prioritize and sequence epics against other priorities,
including ongoing maintenance work. There are several ways organizations can size their epics, but all share the goal of assessing urgency, value, cost
of delivery, and cost of delay to enable smarter, faster prioritization decisions.

3 Prioritize and sequence Lean business cases

Once Lean business cases and their represented epics are drafted and
sized, they are ready for a different type of prioritization exercise.
Many organizations choose to follow a Weighted Shortest Job First, or
WSJF, approach, where the epics determined to have the highest cost
of delay for their size are completed first. This is a helpful starting place,
especially for groups and people new to Lean budgeting.
and practicality of various sequences. This allows them to consider
various tradeoffs involved in certain sequences and mitigate risks or
dependencies across epics.
Prioritizing epics in this way helps to ensure the right mix of investment
across value streams consuming those epics, while also drastically
speeding up the process from vision to value.

To truly optimize investments and resources throughout the portfolio,

organizations will run different scenarios to test the logistical feasibility

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 4 Use Lean guardrails to define spending policies by value stream
As we mentioned earlier, the Lean budgeting approach allocates
budgets to value streams, with guardrails to define spending policies,
guidelines, and practices for that portfolio.
Defined spending policies, guidelines, and practices across the portfolio
ensure the right investments are made within each budget. These
guardrails are critical to success with Lean budgeting because they
provide the structure necessary to enable autonomy, both in funding and
planning work. Guardrails can include things like:
Guardrails help to ensure the mix of investments within and across each
value stream addresses both short-term opportunities and long-term
strategy, that significant initiatives can be approved, that value and
solution integrity is optimized with respect to capacity allocation, and
that investments in technology, infrastructure, and maintenance aren’t
routinely ignored.

• Investment allocation guidance for a healthy mix of spend across

horizons

• Capacity allocation based on new features, enablers, and maintenance

• Guidance or process for the value streams when an initiative is

Within a value stream, Lean guardrails can help determine whether
“discovered” within the value stream
new opportunities that emerge based on customer feedback, market
changes, etc., can be prioritized or not. They also help to balance
• Shared understanding of business owners’ involvement and
capacity so value streams don’t begin work on features without planning
responsibilities to the team and vice versa
for the enablers and runway needed to complete them.

Lean guardrails also ensure business owners are actively engaged to

guide spending over time, and enable organizational leaders to gain a
clear understanding of how strategic, organizational goals are met, or
not, which can inform future investment decisions.

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 5 Implement and/or expand Program Increment (PI) Planning
Stages 2-4 are repeated on a regular basis, contributing to the
continuous structure of Lean budgeting. Program Increment, or PI,
Planning, is the culmination of each cycle of these steps and often when
budgets are adjusted.
The purpose of PI Planning is to coordinate efforts within value streams,
aligning groups of teams, sometimes called Agile Release Trains, to the
portfolio’s current strategic goals. It can help the teams within each value
stream match demand to capacity, assess funding allocation, and ensure
teams know the most valuable work to focus on. Since most PI Planning
sessions happen face-to-face, they’re also an outstanding time to align
Lean budgeting practices to a cycle or cadence.
Leadership at the portfolio level plays a vital role in preparing for PI
Planning. Ahead of a planning session, leaders will pull metrics to
prioritize which epics to bring into PI Planning and determine funding
shifts. During PI Planning, they’ll work to ensure teams within the value
stream are allocating sufficient capacity for new features, enablers, and
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technical debt and maintenance. During the planning session, they’ll
collaborate with Product and Solution Management to ensure the work
planned for the PI contains the right mix of investments for near-term
opportunities, long-term strategy, and decommissioning solutions.
Teams should leave PI Planning with a clear understanding of the value
stream’s top strategic objectives, and their role in helping to achieve
them, including:
• Accepted features
• New feature delivery targets
• Dependencies within and outside of the portfolio
• Milestones
• A plan for assessing progress
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 6 Monitor and measure progress (customer value)

Because progress is defined so differently in Lean budgeting, the measures used to assess
progress are different, as well. Whereas traditional accounting practices might look at
compliance with schedules, scope, and budgets as indicators of success, Lean budgeting
measures, first and foremost, value creation: How much customer value did we create during
this PI?

The OKR (Objectives and Key Results) process is one way mature Lean organizations
approach setting, communicating, and monitoring goals on a regular basis. Defining and
aligning around OKRs helps to link organizational and team goals in a hierarchical way to
measurable outcomes. Put simply, OKRs help to answer these two questions:

• Where do we want to go?

• How will we measure our work to get there?

Objectives should be: Ambitious, qualitative, actionable, and time bound. An example of a
portfolio-level Objective is:

• Improve online customer experience within the next 6 months.

Key Results should be: Measurable, quantitative, time-bound, and help to make the objective
actionable. Some examples of portfolio-level Key Results for the Objective above are:

• Reduce online support calls by 15 percent

• Increase conversion rate of website visitors to trial by 20 percent

• Better understand online customer pain points

Defining and aligning around OKRs helps to link organizational and team goals in a
hierarchical way to measurable outcomes, ultimately connecting spend to outcomes through
Lean budgeting.

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 7 Reallocate Lean budgets iteratively

Finally, it’s important to periodically reassess how funds are allocated across
the portfolio. This process requires analysis at both the the portfolio and
value stream levels and is typically scheduled to coincide with PI Planning.

Establishing a regular cadence to assess portfolio performance, using

the OKRs set forth, and reallocate budgets accordingly is a critical part
of Lean budgeting. This creates a regular opportunity to, across the
portfolio, adjust investments in various value streams based on real-time
performance metrics:

• If your teams are seeing a lot of validation from a particular market, you
can invest more into exploring that market.

• If you are receiving a lot of negative feedback about a new feature or

service offering, you can make a decision about whether you want to
continue investing into that feature or service offering, or to reallocate
those resources towards ‘winners’.

In a traditional system, there wouldn’t be an opportunity for that team to

abandon the project until the next planning cycle, which means they’d not
only create waste by completing the project anyway, they’d also incur the
cost of delaying the next, more impactful change by months or even years.

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 In order to evolve your business with Lean Portfolio Management (LPM), you have to evolve
your budgeting practices, as well. Lean budgeting is an approach that is a critical component
of Lean Portfolio Management, and the key to successfully change how your organization funds
the work that matters most.

These seven stages are designed to guide you toward a Lean budgeting organization. The
practices outlined in this guide will help to decrease funding overhead and friction while
maintaining financial governance within your portfolio, so that everyone can stay focused on
delivering strategic objectives and customer value.

About Planview’s Enterprise Agile Planning Solution

Planview’s Enterprise Agile Planning solution provides a scalable enterprise-level Lean Portfolio
Management, Agile Program Management, and Agile delivery platform that enables planning
and value delivery from the portfolio level to the Agile team. With transparency into how
portfolio initiatives and value streams are progressing across the business and key insight into
changes needed across financials, capacity, and delivery, the entire organization can more fluidly
shift to deliver better business outcomes.

To learn more visit the Enterprise Agile Planning solutions page at

Planview.info/eap-solution-page or watch the Enterprise Agile
Planning demo at Planview.info/eap-demo-on-demand

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