In the last two parts of this series, we have looked at annual funding and the poor outcomes it drives. Then we took a detour to look at the possibilities that open up if an organisation enhances the transparency, quality, and timeliness of information available to it through building a single demand view. Now it’s time to continue on our journey, looking at alternatives to traditional models of funding that rely on annual (or longer) cycles and focus on funding specific pieces of work.
Our eventual destination is something we call Adaptive Funding. But we can’t quite get there from where we are, so we’ll have to make a few stops along the way.
You are here
Traditional funding involves the organisation funding specific pieces of work on an annual cycle – during budget season, business cases are written and funding is approved based on individual pieces of work. There may be several levels of this – a business unit will make a budget submission based on an aggregate of all the projects it wants to run that year. Then, when the actual allocated budget comes in, it will have to re-assess that list to match the available funding, or re-apply for more funding based on an updated business case. By the time budgets have been finalised, there have been many rounds of back and forth, which occupies the leaders in the organisation for months.
We’ve looked at the problems with this model in some depth, so I won’t labour that point too hard. The question here is how do we get to something better?
First stop – Programs not projects
Most organisations fund work at the project level because that’s the only way they have to provide visibility of that work. Some organisations may have programs of projects for very large pieces of work, but ultimately the unit of funding is the project. But as an organisation builds its single view of work, that constraint drops away. When the whole organisation can see every piece of work in the system, its status, and how it rolls up into portfolios of work, it no longer needs visibility into the work through projects and project governance.
If projects aren’t needed for visibility, then funding can move up a level – to larger programs of work. The advantage here is that there are fewer of them, so the list is easier to manage and understand. Funding for individual projects takes a long time because there are hundreds of them in a large organisation and each needs to be understood and funded individually.
Programs are also easier to link to business outcomes. When work is specified as a project, it is most often specified in terms of outputs – we will deliver these things. That’s the basic definition of a project – a temporary construct to deliver specific things. The first casualty here is the linkage between work and business outcomes – a project may deliver its outputs, but what were the actual business outcomes delivered? Yes, we delivered the new login screen, system, or member experience, hopefully on time and within budget, but what were the actual business results? Did it result in more sales, lower costs or prevent churn? How did it impact the key strategic measures that the business is trying to drive?
Because projects are often so small and narrow in focus, it is often difficult to link them to actual business outcomes. Did the new login screen cause a rise in customer satisfaction? Or was it the 30 other projects running on the app at the same time? Programs, being broader in focus can more easily be linked to actual outcomes – did our app modernisation program increase customer satisfaction?
So a shift to funding programs allows the leadership of the organisation to simplify its annual funding by focusing on a smaller number of programs while leaving the detail around specific deliverables to individual business units. It also allows the organisation to start to link work to outcomes rather than outputs which helps with strategic alignment. All enabled by a single view of work that allows leaders to drill into detail where needed without having to rely on project status reports.
Second stop – Portfolio flow
Now we have an organisation, enabled by a single view of work, funding programs of work on an annual basis. The next stop on our journey comes when we add our single view of capacity to complement our single view of work. Now we can see in real time, all the work in the system, its status and the organisation’s capacity to deliver. This allows us to move to a flow-based model for managing and funding work.
Rather than fund work, we can now fund capacity and adjust the level of funding to grow or shrink that capacity based on the level of demand. So rather than fund an app modernisation program, fund a long-lived group to deliver app features and adjust the size of that group based on demand. Expand when there is significant modernisation work to perform and shrink it when that work is done. Just like programs, capacity can be linked to business outcomes – we will fund this level of capacity for the app and we expect the following business outcomes to be delivered.
Matching capacity to demand allows for flow to be established – work moves smoothly through the system from idea to delivery without spending long periods in queues waiting for resources to be allocated. This massively speeds up time to value and further simplifies the funding process because you are now funding long-lived capacity, rather than short-lived work. Funding decisions now are around expanding or shrinking existing capacity or setting up new capacity where the business needs to expand into new areas.
How those funding decisions translate into work and how that work matches demand, can be seen in real time through our single view.
Third Stop – Investment not cost
The third part of the single demand view is the single view of value. This adds a value lens to our work and capacity view – is the work we are flowing through our capacity delivering the value we are looking for? This allows the organisation to take an investment view rather than a cost view for funding.
Up until now, funding has largely been a cost decision – how much will this thing or this capacity cost me? Adding in a value lens lets the organisation flip the conversation to an investment decision – how much will we invest to capture the value in this area?
This may seem like a small change, but the impact is huge. Cost decisions always become cost minimisation decisions – what’s the minimum I can spend to get these things? Cost decisions tend to be short-term, inflexible and tie you into specific deliverables or outcomes, regardless of changing circumstances.
Investment decisions tend to be longer-term and more flexible. Having an investment mindset makes it easier to recognise opportunities for additional value and to adjust the investment to capture that value. Or conversely, to recognise a poorly performing investment and adjust investments to correct (or stop investing in that area entirely).
When you have real-time information on how your investments are performing – what value they are delivering, what that delivery is costing, what the impact is on the organisation’s capacity, you have a system that allows leaders to monitor and adjust investment thresholds as often as necessary. This helps keep the organisation on track to meet its strategic goals and to respond to changes in the environment.
You have arrived
We started our journey with an inflexible, complex, time-consuming annual funding cycle. By enabling the organisation through good, reliable, timely information we have enabled a switch to a flexible, investment-based funding process that allows the organisation to respond quickly to changes in the environment. It allows them to identify and capture additional value when the opportunity appears and allows them to correct poor-performing investments on time.
The availability of reliable and timely information has been one of the key limiting factors in modernising the planning and funding processes in organisations. Leaders were like drivers in a car with foggy windows – feeling their way slowly along the road and only really knowing where they were when they stopped, got out of the car and looked around.
By progressively building a single demand view – single view of work, single view of capacity and a single view of value, we clear the fogged windows and enable leaders to steer their organisations more effectively.
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