Imagine the scene: an organization brings you in, as an agile consultant, to sort everything out – from the definition of the new product development strategy, to the improvement of the ways of working and their current structure – to suit the agile roles more.
They also bring you in to fix something which, especially for the business, is more important than anything else: defining the budgeting for agile initiatives.
The key question I am often asked is: “how can I easily determine the budget required to deliver my agile initiative?”
This comes not only from organizations where the agile culture and way of working are still not well established, but also from people who have worked in agile for over a decade!
As we know, though, working agile doesn’t always mean being agile…a small, but very important difference!
Especially when funding an agile project is a new practice in the organization, my recommendation is to “inspect and adapt,” in pure agile fashion, and to:
There are different ways we can estimate the funds that are necessary to deliver an agile project.
In this article I will try and be more specific on budgeting for Scrum Teams, however the same principles can be applied to other agile methodologies.
Imagine you are meeting the program (or steering/management) board of directors, i.e. those responsible to sign off the budgets for programs of work in the organization.
Very often, they request a detailed business case, featuring expected timelines for the delivery, costs & benefits analysis, and an accurate list of risks, issues and dependencies – all to be reviewed and approved by several key stakeholders.
I find writing traditional business cases very time consuming and not really cost effective – have you ever tried to monetize the time you spend chasing those stakeholders? And what about the value of their attendance to endless sessions to review your business case, often in multiple iterations?
Even this very initial piece of work can become quite an expensive business, even before the project kick-off!
What I have found useful in my experience has been to move away from writing old-fashioned business cases and engage management in an overview session on how to fund agile development projects.
This will naturally lead to kick start a small initiative with a fixed timeframe, e.g. 2 months, to minimize expenditure and risk, and to give the opportunity to learn iteratively – a sort of “calibration phase,” not only helpful to the delivery team(s), but also to the business stakeholders themselves.
I would still prepare a little slide deck to describe this approach, its benefit and the high-level timescales, and present it back to the Business to gain more confidence.
Management likes this idea. What’s next?
We know that agile heavily promotes collaboration (as also defined in the Agile Manifesto).
As such, it’s pivotal to have a discussion with your scrum team to have an initial estimation of the effort required.
I would suggest to base the first estimation with a t-shirt sizing exercise (refer to the previous article), so that, at a high level, the team is able to provide a rough estimate for the effort and time required to deliver your epics.
Imagine you have your epics t-shirt sized now, and you have some rough time estimates.
Say, for example, your scrum team can deliver the work in 4 sprints of 2 weeks each, i.e. 8 weeks.
Okay, I know what’s going to take now. But how much is it going to cost?
The next step is to figure out the cost per sprint.
How can this be determined?
First, you have to find the daily cost of each member of the scrum team – for example it’s $500.
Then, if the scrum team is made of five people, the daily cost for the team becomes $2500.
If you work on a two-week sprint, the cost per sprint is $25,000 (10 working days x $2500).
You can use this figure for your budgeting.
In the example earlier, we said the scrum team estimated 4 sprints to deliver the work; therefore, the budget required would be 4*$25,000, so the total cost for the development becomes $100,000.
I recommend to budget for some contingency, in case you need an extra sprint to complete your work – remember the initial estimate comes from a t-shirt sizing exercise, which could not be 100% accurate!
In scrum, more details come to light when sprint planning sessions occur, and the scrum team can provide more accurate story points against each user story.
Hence, you can go back to the management with an estimated cost of $125,000 for your development.
When agile is new in an organization, or still not well established, finding the right way to get budget for your initiative can be quite tricky. One way to doing an accurate estimation of the budget required is to calculate the cost per sprint and the number of sprints required to deliver, and present this back to the business.