Agile Project Budgeting

The problem of traditional project budgeting

Traditional project budgeting uses bottom-up approach that requires the forecast of all involved tasks for the entire project development process and the estimates of their corresponding cost and duration all in the pre-project phase. In today’s fast-paced business world where changes represent the norm and few things are predictable, this approach has resulted in more and more ineffective project budgets.

Agile project budgeting

Agile project budgeting is created by combining both top-down approach and bottom up approach. Top-down approach is applied by management to set up a budget pocket for each group of projects (i.e. a project category) for a fixed period of time (such as 3 months or 6 months); bottom-up approach is applied by project teams to detailed tasks in their projects for fairly short time boxes (such as 2 weeks per iteration and 2 months per increments) when realistic cost and schedule estimates are possible. As long as the budget pocket isn’t breached, the project teams are free to allocate resources (cost and time) to where and when they are needed and to re-allocate the resources to accommodate the inevitable changes during the entire project development process. The goal is to maximize value delivery by aiming at higher quality of deliverables for the customers.