Rethinking Budgeting: Backlog-Led Budgeting
Traditional top-down budgeting approaches may no longer suffice for effectively managing resources in digital development departments. Instead of relying solely on historical budgeting habits, forward-thinking organisations are shifting towards a backlog-led budgeting approach.
This strategy places emphasis on building a comprehensive backlog of requirements and prioritising initiatives based on value, risk, and impact, ultimately driving more informed budgeting decisions.
Building the Backlog
The first step in adopting a backlog-led budgeting approach is to establish a dedicated requirement/discovery team or conduct regular workshops to identify and document project requirements. This cross-functional team collaborates closely with stakeholders to capture a wide range of business requirements, user stories, features, and enhancements that align with the organisation’s strategic objectives. Extending the backlog horizon to 12 to 24 months enables long-term strategic planning, allowing you to anticipate future needs and opportunities more effectively.
During this process, it’s essential to prioritise backlog items based on their potential value to the business and customers. Techniques such as MoSCoW prioritisation, value vs. time analysis, and cost of not prioritisation can help you to determine which initiatives should be included in the backlog and in what order. By extending the backlog, you can align the development roadmap with long-term strategic goals and market trends, enhancing overall project alignment and effectiveness.
Estimation and Validation
Once the backlog has been compiled, the next step is to estimate and validate the effort required to deliver each backlog item. Digital development teams can leverage various estimation techniques, such as story point estimation, relative sizing, or t-shirt sizing, to gauge the complexity and scope of each initiative. Extending the backlog also allows for more accurate estimation and validation, as teams can consider long-term dependencies, technical challenges, and market uncertainties in their planning.
Validation of backlog items involves assessing their feasibility, clarity, and potential risks. You can use methods like risk vs. clarity analysis and impact vs. effort assessment to prioritise initiatives that offer the greatest value with the least amount of risk. By validating backlog items early in the process, you can ensure that budget allocations are aligned with achievable and impactful outcomes, reducing the likelihood of budget overruns or project delays.
Building the Business Case
With a refined backlog in hand, you can proceed to build a robust business case for these initiatives. The business case should articulate the strategic rationale behind each project, including its expected benefits, costs, and risks. Extending the backlog horizon provides you with a clearer understanding of upcoming projects and resource requirements, enabling you to make more informed decisions when building the business case.
In preparing the business case, you should draw upon insights gathered during the backlog estimation and validation process. By showcasing the value proposition of each initiative and quantifying its potential impact, you can make a compelling case for budgetary support from senior leadership and stakeholders. Long-term strategic planning ensures that the business case reflects evolving priorities and market challanges, enhancing its credibility and relevance.
Continuous Improvement
Backlog-led budgeting doesn’t end with the approval of the budget. Instead, it forms the basis for an ongoing feedback loop that informs budgeting and forecasting decisions throughout the year. Digital development teams should regularly revisit the backlog, reassess priorities, and adjust resource allocations based on changing business needs and market demands. Additionally, you should conduct retrospective reviews to evaluate the effectiveness of your budgeting approach and identify areas for improvement.
In a period of rapid technological advancement and digital disruption, organisations must rethink their approach to budgeting for digital development. By embracing a backlog-led budgeting approach, you can leverage the collective expertise of your teams, prioritise initiatives based on value and impact, and drive more informed budgeting decisions.
With careful planning, estimation, and validation, organisations can ensure that their budget allocations are aligned with strategic objectives and deliver maximum value to the business and its customers.
