What is Lean-Agile budgeting and why it matters?

May 18, 2020, 10:40 AM

Traditional organizations often operate by trying to achieve more with less budget, which often leads to actually using more money in the long run. Lean-Agile budgeting doesn’t offer quick wins but helps the entire company operate more cost-efficiently for long-term savings.

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Rami Sirkiä, Senior Lean Agile Coach and SAFe SPCT from Nitor talks about Agile-Lean budgeting and its benefits in the Agile Cockpit podcast. To get you started, here’s a recap on what Lean-Agile budgeting actually means and why you should get interested.

Companies often operate with a “cost controlling” mindset, actively trying to achieve more with less money. But it also leads to focusing on variance-to-plan rather than using the latest information and doing the right thing.

One example of challenging behavior this mindset creates is how cost centers have a set annual budget. This often leads to spending the full budget to avoid any cuts for the following year. One evidence of this challenge is a study in Finnish municipalities that showed that December spending was tenfold compared to any other month. You can consider yourself how this mindset makes organizations inflexible, leaving them unable to function efficiently as - things will change, and plans would need to be changed.

Instead of looking into optimizing small separate sections and sub-systems, organizations should learn how to streamline the entire system to operate more efficiently. That’s when the overall costs start to go down long-term.

Treating budgets like an accepted burn rate to build a competitive advantage helps to achieve a more agile governance model that enables results and fosters growth. Allocation today is based on the needed competencies and visions of the company today, where the performance and end-user response will dictate how the budget gets balanced tomorrow to ensure the optimal distribution of investments.

For more insights, don’t forget to check out our white paper on Lean and Agile financial planning.