Despite the fact that no project manager enjoys having to communicate to customers that their project has gone over budget, recent data suggests that only 43% of businesses are able to complete their projects on time and within the allocated budget.
Budgeting is always a challenging process as it requires striking a balance between allocating a financial cushion and not going overboard. Doing so within the context of Agile methodology, however, may be even more difficult. Unlike traditional waterfall project management, where the scope is predefined and fixed, Agile methodology is focused on adaptation, since the objectives of a project may quickly and frequently evolve. This raises the question of how to deliver results within a predefined budget when the final aims have changed.
In order to minimise the risk of going over budget, it is essential to establish a workable and adjustable budget, maintain an organised and transparent schedule, and regularly re-evaluate objectives. It is also important to have the ability to modify the client’s outlook on the budgeting process. By overcoming these challenges, you will be able to produce a higher quality product and have a better chance of finishing the project in a timely manner. For guidance in attaining these objectives, the following tips from veteran Agile project managers may be of assistance.
Establish the Context and Expectations
When embarking on any project with a client, it is essential to not only identify and come to an agreement on the desired outcome (i.e. the ‘What’), but also to delve deeper and discuss the purpose behind the project (i.e. the ‘Why’). It is crucial to understand the motivations behind the project in order to ensure the most effective approach and successful outcome.
Anuj Datta, a program director and business management consultant with extensive experience managing budgets for large financial services firms, is committed to determining the underlying purpose behind any project his clients undertake. He emphasises that it is essential to understand the underlying needs of a customer, as what they think they want may not be what they actually need. As he puts it, “If a customer tells you they want a Ferrari, but their only purpose is to get from point A to point B, it would be more cost-effective and practical to create a scooter.
He emphasises the importance of understanding the end users of the client’s product. It is essential to identify the desired outcomes and objectives of the users to be able to prioritise value and to ensure that stakeholders have a shared vision for the project.
If customers have already identified the approximate amount they intend to spend, it is best to ask why they have determined that particular budget. If they have based the figure on the budget of a competitor, it is important to explain how the two businesses may differ in resources and how this could impact cost. Additionally, if the budget is based on a previous project, it is important to consider the elements that could potentially cause discrepancies. By doing so, it will be easier to ascertain if the customer’s desired objectives are feasible within their allocated budget and provide assistance in making any necessary adjustments.
It is recommended that you provide a range of possibilities based on the product they are looking to create. These possibilities should include a minimum viable product (MVP), a scalable product, and an option that is tailored to the exact specifications of the desired outcome. By considering multiple options, the customer can select the one that most closely meets their needs.
Ultimately, it is important to ensure that your customer comprehends the fundamental principles of Agile. Making sure that change is expected and accepted as part of the process will result in increased adaptability in the future. When there is uncertainty related to a feature that may require additional expenditure, Andrew Lester, a specialist in project management and a well-experienced Agile thinker, suggests that you should be as honest as possible about it: “It is essential for you to consider all of the relevant facts and to discuss them openly with the customer.
Determine What You Can and make adjustments as You Go
As an Agile project manager, it can be challenging to accurately forecast the cost of a project. Nevertheless, there are various sources of information which may help to improve the precision of cost estimations. By utilising these resources, it is possible to gain a better understanding of the project’s scope and timeline, and thus obtain a more accurate estimate of its costs.
Agile teams employ a variety of estimation techniques to assess the magnitude, risk, and intricacy of each request prior to the commencement of a project and after all customer requirements have been thoroughly understood. After a comprehensive assessment of all tasks, the project manager can estimate the total amount of time and money needed for the project depending on the length and number of sprints, as well as the team size and cost.
Agile has the potential to offer tremendous value, as it often allows teams to commit resources to a single project. This can help ensure that the project remains within budget by providing a better understanding of the employee resources required for each sprint. As Ajay Datta explains, “not every project will have a set team, but dedicating resources to a single project can help maintain budget control.
In order to maintain budget control, it is important to accurately calculate the expenditure for each step of the project. This can be done by multiplying the estimated number of weeks by the team’s day rate. For instance, if a shop landing page is expected to take four weeks to complete and the team charges $10,000 per week, the budget for the project should be set at $40,000. To ensure the budget remains within the control of the project, it is highly advisable to track the velocity of the project as it progresses. Jon McGowan, an Agile transformation expert who has managed projects for a number of large institutions, has stated that monitoring the velocity of the project can help to determine if the estimates need to be adjusted.
Lester agrees that if the velocity of the sprints is not meeting the initial expectations, then it may be necessary to make a decision with the client about the scope of the project. They may either choose to reduce the scope of the project while maintaining the same budget, or they can add additional engineers to improve velocity but with the consequence of increasing the budget.
He emphasises that implementing an Agile strategy becomes more feasible as the project progresses, suggesting that by the halfway point of the project, it should be clear how to reach its goal. For the remainder of the project, he advises that the run rate must remain consistent in order to stay within the budget.
Maintain Client Involvement Throughout the Process
Once it has been established and agreed upon with the customer that the budget and expected results have been set, it is of the utmost importance to ensure open and consistent communication throughout the duration of the project. Client cooperation is a vital part of an Agile process, yet some teams may overlook the importance of frequently requesting and receiving feedback from the customer. Some teams, particularly those new to Agile, may take a Waterfall approach and assume that they understand what the customer wants, and therefore only need to consult with the customer at the end of the project to present the final product. Having inadequate communication can result in issues such as scope creep, and may lead to the project exceeding the set budget.
By staying in close contact with customers throughout the project, it is possible to ensure that the project remains on course. It is recommended that contact is made at least once after every sprint in order to ensure that any changes in customer needs can be addressed promptly. Doing so will also prevent any costly adjustments being necessary at the end of the project when the budget is likely to be depleted.
According to Datta, it is highly likely that the customer’s needs and preferences can change as they gain a better understanding of what has been delivered and as other factors continue to evolve. At the end of each sprint, the customer’s feedback can be instrumental in shaping the backlog and making decisions about which features to prioritise or remove.
According to Lester, input on prioritisation is of utmost importance when making any modifications to the scope. He stated, “When deciding to fix the budget but alter the scope, it is essential to only carry out the most vital tasks.
Despite having your progress as planned, alterations to the scope of the project may be inevitable. As certain features of the product may prove to be more complicated than originally anticipated, this could require additional effort, duration and expenditure. To avoid going over budget, it is essential to assess the project’s aims and outputs.
It is essential for customers to recognise the need for scope flexibility, as highlighted by McGowan: “It is necessary to delete certain storylines in order to keep the project on schedule and on budget.” This deviates from the traditional waterfall approach in which scope is predetermined. Establishing a fixed-scope project charter for an Agile team is a common misstep that prevents any room for manoeuvring.
One way to keep your customers up-to-date with their project progress is to provide them with access to a burndown chart. This chart would allow them to track the work that has been completed, as well as the number of sprints that remain, providing them with a comprehensive and transparent view of how their investment is being allocated. This will give them the confidence that their money is being spent wisely.
The key to successful Agile project budget management is to make the most of existing knowledge while also recognising and embracing the unknown. Utilising the information that is available to you, such as the time, talent, and financial resources available, is essential for making informed decisions. However, it is just as important to maintain an adaptable approach and open dialogue, so that you can take advantage of any opportunities that arise. To ensure a successful balance, you should set realistic expectations, provide guidance to the client and team members, and be prepared to adjust objectives as needed.
This infographic, created by our experts, provides invaluable advice on agile budgeting and forecasting, helping to ensure that the final product matches customer requests, user requirements, and budgetary resources. By clearly defining expectations at the outset of a project, this approach can help to ensure that the desired results are achieved.