Funding Models In IT Organisations

Structure of the Presentation

1. Traditional Funding approach

2. Problems with traditional funding
3. Alternative funding models
Traditional Funding Approach

IT firms have been following a standard practice since some decades now
which had served well for years:

Evolved to control, This is an annual Comprises of strict Suits well for

maintain and balance budgeting and monitoring of teams investments where
the risks of handing out usually takes place on hourly basis in the solution and
funds to the right places only at the start of order to allocate cost return on delivering
to stay in business and the project. and other incentives. that solution are
thrive appropriately. known.
Problems with Traditional Funding Model
Other Issues: One
Size • A standard budget procedure for all the Investments (large and small)
1)Annual budgeting and and assumption that they are same.
Cost accounting
Fits all • Becomes a hurdle to scale up a project due to static processes.
Model
2)Time based and not
value based
Pitfalls Project • Working till the life cycle of a project with a particular team and
3)Outcomes are not with investment.
values as much centric • Forming and reforming teams as projects gets completed and begin
Traditional Model wastes effort and creates stress.
4)Heavy reliance on up Funding
front requirements

5)Adherence to plan No
with no feedback. Risk • Having intolerance to risk and removing any possibility at any cost.
• Thus, there is no room for innovation and research.
Model
6)’Failure is not an
option’ mindset
Alternative Funding Models
1. ISO Funding model:
• Traditional funding is derived based on prioritization schedule of big-ticket items stacked up against historical overhead
expenditures. This Budgeting exercise is a painful process.
• ISO model suggests to change the existing traditional model into a product centric model.
• Product-centric organizations deliver value to both the business and the customer, whereas project-based organizations
use budgets and timelines to measure success.

2. Technological Funding model :

• Technology Funding Model empowers IT , enables funding decisions faster, makes the drivers and technology investments
transparent.
• As digital business transformation changes technology spending across the enterprise, leaders need a new model that truly
reflects the nature of technology investments in a digital business which is provided by technology funding model.

3. SAFe lean Model:

• A Lean Agile approach for financial governance
• Fundamental principle of financial governance for the development and deployment of business Solutions
 ISO Funding Model
ISO Model changes the Project centric traditional model into a Product centric model by altering the financial time scale , thereby measuring
success in terms of value delivered

Incubate Scale Optimize

Align Business Priorities

Funds Fund Pilot
Use Technology To Product Funding -
Correlate capacity and
budget to scale up
Teams no of pilot teams cost of the capacity to
the value derived from
what the team delivers
Release funds
0.25 X Work within
quarterly based on
Central Funding X Budgets value delivered
Office Expand funding model
to non tech
Quarterly
Shark Tank investments & apply
Funding to all aspects of the
Committee
business
 ISO Funding Model – Product centric Funding model
Incubate
 Establish pilot teams as
capacity- driven : Fund pilot
teams for a short period of time.
During that time period, team
leadership should report
outcomes to the finance
department to show value-
driven success
 Work within budget and
financial constraints
 Use a quarterly funding model
for piloting teams. This practice
requires the product teams to
present their delivered value
prior to receiving any funds
Scale
 Use Technology budget to scale
up the number of capacity
driven teams/Product funding
teams.
 Release funding quarterly based
on the value delivered
 Epic-Based funding/”Shark-
Tank”- Create a committee
which assesses the teams and
allots funds based on the epic
cases they present
NOTES
Optimize
 Continue to focus on alignment
on business priorities and
product funding
 Expand funding model to non-
technology investments.Apply
to all aspects of the business.
Technological Funding Model
Technological Funding Model allows CIOs to be the steward of enterprise technology spending, empowers IT and other business leaders to make
funding decisions faster, and makes the drivers and benefits of technology investments transparent.

CIO , Tech Leaders

Decides on Maintenance and OPs

Clarification of
dependencies on
Scope of Enterprise New business
view of technology Capabilities
Central Funding
Office
Business Leaders(Single Owners of New Capabilities)
Decides on
New Business
Capabilities
Allocation of
Setting up X Budget based
P1 on Product lines
and
investing
P2
according P3
to P4
priorities Solutions
P5
PL1 PL2 PL3
Technological Funding Model NOTES

1. Development of enterprise view of technological spending:

• Should start with understanding scope of technological wide spending.
• Making Sure investments are promoting highest enterprise priorities.

2. Prioritizing and allocating the Work by product lines:

• Teams are aligned to business capabilities rather than specific projects.
• Product owners and managers work throughout the year to decide on the capabilities to develop.
• Because of quarterly assessment of funds, allocation is possible on a continuous basis by teams.

3. Moving new capabilities to business line Budgets:

• Single ownership to Business leaders providing better accountability.
• Business leaders control over all technology spending on new capabilities, while the CIO retains the budget for foundational investments and
operations.
• Provides the freedom to invest on new technologies and nontechnology and its criteria.

4. Separating Technology Foundation Budget:

• Budgets split into two categories—one for maintain and operate and another for digital foundations—CIOs can protect the digital foundations
funding from cost-cutting efforts.

5. Clarify Dependencies between Funding Categories:

• CIO’s can make business leaders understand of importance of maintain-and-operate budgets and spending on new capabilities.
Safe Lean Budget Model
NOTES
Effects of Deploying SAFe Lean
Model

• Lowers Overhead Costs Beyond Project Fund Value

Participatory
• No Budget Surprises 3 Cost Accounting 1 Streams not
Budgeting with SAFe
• Higher Throughput project
• Higher Morale
• Full Control of total spend
• Leads to Empowerment
• 2
Equal participation of teams
in budget decision

Guide
Investments
by Horizons
Fund Value Streams
Why Fund Value streams? NOTES

• Better visibility to large business and technical initiatives (portfolio

business and enabler epics)

• Improved clarity of spending

• Enables faster and better decision-making

• Long-lived value stream knowledge workers are simply more

productive than temporary project teams
FEATURES:
• A value stream is the primary construct for understanding, organizing, and delivering value in SAFe.

• It identifies both value and non value added things in the business flow

• Each value stream is a long-lived series of steps used to create value.

• Each Value stream delivers one or more solutions

• Budgeting the value stream is done via participatory budgeting

• Lean Budget Guardrails support these budgets by defining the spending policies, guidelines, and practices for a specific portfolio.
Guiding Investments by Horizons
NOTES
Horizon 3 Horizon 2 Horizon 1 Horizon 0

Wide ranging and
exploratory goals
extending to 3+ years
Focuses on selling
Next generation
and enhancing Decommissioning
Horizon 1 products
current offerings of
taking 1-2 years
today

STOP
• Innovative solutions
• To be kept Isolated from
operating model.
• Transferred to Horizon 2 if
everything goes well
• Consists of promising • A state where solution • Consists of investment
solution from needed to Decommission a
provide more value than
horizon 3 Investment solution
• May require Horizon • Requires ongoing • This further frees up space
1 resources investment to maintain for other Horizons
and extend Functionality
• Likely to be
profitable
 Participatory Budgeting and Lean Portfolio
Management NOTES

• Participatory Budgeting is an Lean Portfolio Management event in

which a group of stakeholders decides how to invest the Portfolio
budget across solutions and epics.

• Participatory budgeting ensures that value streams receive the

funding required to advance the solutions.

• The Agile Release Train includes all the people (expertise) needed
to implement, test, deploy, and release to deliver software,
hardware, firmware or other. Typically composed of 50-125
people, each ART is a virtual organization that plans, commits,
develops and deploys work together
Stages of Participatory Budgeting
I. Prepare Content II. Assemble Participants
Preparation of the • PB is most effective when
a diverse and responsible
following: set of representatives are
• Business context: current involved.
state of the business  • Each role brings a unique
Strategic Themes, and and valuable perspective
Portfolio Vision. to the decision-making
process.
• “Run the Business
Solution Costs”: Employee Participants include:
salary , corporate • LPM
overhead Contractors, • Product and Solution
Suppliers Costs etc.. Management
• Epic Owners
• Proposed Solution • Enterprise and Solution
Initiatives: To improve Architects
current solutions or • Business Owners
introduce new ones. • Other relevant
Eg: Portfolio ,Solution stakeholders, such as
Epics finance, marketing, or
sales
III. Conduct Forums
PB event follows an agenda
and all participants have the
list of Business solutions costs ,
Proposed solution Initiatives
and discuss funding allotment
NOTES
IV. Analyze Results
The aggregated results of the PB
forums are analyzed to identify
suggested funding patterns
Some common patterns of
investment include:
• Investing in solutions which are
generating stable returns
• Reducing investments in one
solution to invest more in a
different solution with a better-
projected return
• Decommissioning of obsolete
solutions to free resources for
innovation
• Investing across all solutions to
realize a standard set of
business requirements, such as
compliance or serving a new or
adjacent market
• Reducing investments across
all solutions during an
economic downturn
3 Dimensions of Lean Portfolio Management NOTES
The Lean Portfolio Management competency aligns
strategy and execution by applying Lean and
systems thinking approaches to strategy and
investment funding, Agile portfolio operations, and
governance.

• Strategy & Investment Funding ensures the

entire portfolio is aligned and funded to create
and maintain the solutions needed to meet
business targets.

• Agile Portfolio Operations coordinates and

supports decentralized program execution and
fosters operational excellence.

• Lean Governance is the oversight and decision-

making of spending, audit and compliance,
forecasting expenses, and measurement.
Horizon Funding Model NOTES

Diving the funding into 3 different types of horizons

where each plays a crucial and individual role:

• Horizon 1: Involves only the core business of the

company for which the company is actually known
and major profits comes from, and the focus is on
improving performance so as to maximize value.

• Horizon 2: Involves funding the opportunities

within 2-3 years that can be foreseen and is likely
to generate substantial profits in future with
considerable investments.

• Horizon 3: Involves generation of ideas that can be

beneficial in the longer run and leads to profitable
growth and caters to span of 5 or more years.