How to Establish Lean Budgets for Agile Success

Implementing Lean budgets is a crucial step for organizations adopting Agile practices in the context of the Scaled Agile Framework® (SAFe®). Traditional project portfolio management and budgeting approaches often inhibit delivering value.

Lean budgeting takes a different approach focused on empowering teams, decentralizing decisions, and delivering value fast. Read on to learn how to move beyond traditional budgeting to establish Lean budgets that fuel Agile success.

SAFe® and Scaled Agile Framework® are registered trademarks of Scaled Agile Inc.

Problems with traditional budgeting approaches

Many organizations rely on traditional project portfolio management approaches that create bottlenecks. Here are some of the most common challenges:

  • Project-based cost accounting – Traditional project cost accounting requires constantly moving people between projects and renegotiating budgets. It limits flexibility and causes waste.
  • Functional silos – People organized in functional silos struggle to deliver end-to-end value. Handoffs and misaligned priorities across departments inhibit flow.
  • Overly detailed business cases – Requiring big, detailed upfront business cases delays funding and forces big batch work efforts. This inhibits delivering value iteratively.
  • Waterfall phase gates – Gating funding based on completing waterfall-style phases optimizes for utilization, not flow. Teams cannot pivot quickly in response to feedback.

Embracing Lean budgeting

Transitioning to Lean budgeting is a mindset shift focused on empowering teams to deliver maximum value. Adopting Lean budgeting requires rethinking some core practices:

Fund value streams, not projects

  • Organize long-lived Agile teams around delivering value for a value stream rather than temporary project teams.
  • Provide teams a budget to cover capacity over time rather than funding project-by-project.
  • Allow teams to flexibly reprioritize work within their budget as they learn and conditions change.
  • Decentralize funding decisions and trust teams to spend funds responsibly to meet objectives.

Right-size upfront planning

  • Avoid large batches of upfront planning and estimation.
  • Plan just enough to gain commitment for the next stage of learning and feedback.
  • Use rolling wave planning to provide visibility 2-3 months ahead.
  • Re-plan frequently in smaller batches based on feedback.

Economic prioritization

  • Train teams on economic thinking and prioritization techniques like Cost of Delay.
  • Empower teams to make data-driven tradeoff decisions on what will provide the most value.
  • Let go of sunk cost bias. Pivot when the economics suggest it makes sense.

Inclusive portfolio budgeting

  • Use Participatory Budgeting sessions to transparently allocate portfolio budgets.
  • Include diverse stakeholders and facilitate inclusive decision-making.
  • Make funding criteria and guardrails clear.
  • Provide transparency into funding rationales and how budgets are spent.

Visualize flow

  • Use Kanban, Cumulative Flow Diagrams and other visuals to reveal dependencies and bottlenecks.
  • Identify wait states, handoffs, and other areas of waste in the end-to-end value flow.
  • Improve flow by addressing root causes, not just expediting.

Implementing these Lean budgeting practices reduces friction and puts funding decisions closer to teams delivering the value. This fuels faster feedback and flexibility.

Seeing the Investment Horizons

The SAFe Investment Horizon model provides a portfolio perspective on allocating funding to Solutions across multiple timeframes. This helps balance short-term and long-term investments.

Horizon 3: Evaluating (3-5 years)

This stage funds experiments and prototypes to validate new ideas that may provide future growth:

  • Conduct market research to identify potential new product or geographic opportunities.
  • Develop minimum viable products (MVPs) to test demand and usability with a small set of early evangelists.
  • Run crowdsourcing campaigns or design sprints to gather customer feedback on new technologies or features.
  • Implement small pilot projects to evaluate new partnerships, business models, or marketing approaches

Horizon 2: Emerging (1-2 years)

This stage transitions the most promising solutions from Horizon 3 closer to readiness:

  • Scale successful MVPs into wider beta releases to assess product-market fit.
  • Build out integrations and infrastructure to support scaling market-validated solutions.
  • Grow partner and early adopter communities to co-create solutions.
  • Refine business models and operational processes for solutions demonstrating value.

Horizon 1: Investing & Extracting

This stage focuses on improving existing systems while maximizing profit:

  • Fund initiatives to enhance capabilities and the competitiveness of current products.
  • Maintain solutions with stable revenue streams (cash cows) that require minimal investment.
  • Expand customer segments and acquisition channels for established offerings.
  • Improve delivery pipelines, DevOps, and automation for faster time-to-market.

Horizon 0: Retiring

This stage winds down solutions that no longer provide strategic value:

  • Develop sunset plans to transition customers off obsolete or unprofitable solutions.
  • Reassign teams from retired solutions to new initiatives.
  • Extract lessons learned from solutions being retired to apply to future efforts.
  • Prioritize divesting solutions that are cash and resource traps.

Aligning budgets and roadmaps to these horizons balances short-term returns with long-term bets.

Participatory Budgeting in action

Participatory Budgeting (PB) brings diverse stakeholders together to transparently decide how to allocate portfolio investments.

Done well, PB builds engagement, accountability, and trust. Follow these tips to maximize its impact:

Involve diverse stakeholders

  • Get better ideas by broadening your perspectives
  • Increase adoption across organization for a smoother implementation
  • Achieve higher quality decisions by tapping a wider base of knowledge and experience
  • Boost morale and inclusion by encouraging open participation

Communicate clearly

  • Improve understanding across all groups to support more effective processes
  • Increase participation by making the process accessible and engaging
  • Find better ideas and promote transparency by enabling dialogue
  • Reduce confusion and questions to create efficiencies

Foster collaboration

  • Break down silos to improve alignment
  • Leverage collective intelligence to fuel innovation
  • Encourage greater commitment by building shared ownership
  • Develop relationships and empathy for a sense of community and connection

Establish clear guidelines

  • Promote fairness by setting consistent expectations
  • Enable effective preparation and yield higher-quality proposals
  • Accelerate reviews and decisions for faster results
  • Reduce risk through improved governance and compliance

Provide support

  • Boost collaboration skills to create synergistic proposals
  • Overcome barriers to participation and promote diversity
  • Resolve issues quickly with smoother processes
  • Upskill on budgeting best practices to achieve more impactful spending

Ensure accountability

  • Improve trust and engagement by enhancing transparency
  • Facilitate lessons learned to support continuous improvement
  • Demonstrate the ROI of investments to inform better future decisions
  • Establish a positive culture and high morale by celebrating successes

Reaping the benefits

Transitioning to Lean budgeting unlocks tangible benefits:

  • Greater agility – Teams can respond quickly to learnings and new opportunities
  • Improved transparency – Stakeholders have visibility into how funds are used
  • Increased engagement – Cross-functional partners feel ownership in decisions
  • Faster value – Removing bottlenecks accelerates delivering customer value
  • Higher satisfaction – Adapting to evolving needs increases customer delight

Is your budgeting process getting in the way of Lean-Agile results? Follow these guidelines to establish Lean budgets that fuel faster flow. Empowered teams supported by participatory processes can achieve amazing things. Get out of their way and let them delight customers!

Dive deeper by reading our white paper, “Using Lean-Agile Principles to Execute Organizational Transformations”.

Dive deeper by reading our white paper, “Using Lean-Agile Principles to Execute Organizational Transformations”

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