Budgeting in an Agile Environment

In one of my recent LinkedIn Live broadcasts, an attendee asked about budgeting in an agile environment. Here are the steps for building and maintaining a sound budget for an agile project. 

Step 1. Determine your Minimum Viable Product (MVP). The MVP is the smallest possible product that will satisfy the most important business needs. To deliver value to your business as soon as possible, building the MVP (and nothing more) in your initial release is sensible. That way, you deliver the product faster with the smallest budget. As the MVP is used and more is understood, the business can fund development of additional functionality as needed.

Step 2. Build your estimate around people and time. With the MVP identified, the team can estimate how many people and sprints will be required to build and test those functions. This is an easy way to build an estimate. If you plan to have three developers for 12 two-week sprints, your initial estimate is the cost for 72 person-weeks (3*12*2) plus overhead costs needed in your organization.

Step 3. Adjust the number of people and sprints as you learn. Like any project, your initial estimate involves guesswork. As you build features and work through your backlog, you will probably need to adjust your budget. The team should proactively agree to when to re-evaluate the budget. After three to five sprints is a good rule of thumb. Like your original budget, the adjusted budget can be built based on the number of people and sprints, and the length of the sprints.

Step 4. Augment the budget for specific features. The priorities and needs of the business can change during your project.  In addition, discoveries or new ideas for features can surface. As a result, the business may decide to add or delete features and increase/decrease the budget accordingly. While this creates a bit of a moving feast with your project and budget, the changes are made to accommodate the needs of your product owner. 

Step 5. Keep stakeholders in the loop. Ensure your stakeholders are aware of the status of your budget. This is relatively easy with the agile approach. Whenever there are changes to the backlog (when scope is added or deleted,) you communicate those changes and the corresponding budgetary adjustment. By sharing the approved scope changes, you proactively answer any questions about why the budget has changed.

Managing your budget in an agile environment is a straightforward process as long as the agile team manages backlog features in conjunction with the product owner. Follow these steps and worrying about budget management will be a thing of the past! 

For more about agile projects, check out Doug Rose’s Agile Foundations course.

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