Using the Project Portfolio to Move to Incremental Project Funding

If you’ve started to use agile approaches to your projects, you’ve reaped the benefits of seeing completed work, reduced work in progress, and making project risks more transparent earlier. But there’s another benefit of moving to delivering work in smaller chunks: incremental funding for projects.

Few organizations have embraced the idea of incremental funding. It’s easier to ask, “What will this project cost?” than it is to say, “Let’s re-evaluate all of our projects on a periodic basis and decide what to commit to and fund for the next period of time.” The problem is you don’t know how much a project will really cost. You might know your run rate for a given week, assuming everyone is working on your project. You might have an estimate of capital equipment expenses. But you don’t really know how much a project will cost in advance. You can certainly know at the end. But wouldn’t you want to know how much value you can see and how much you’ve spent before the end? I certainly do.

Earned Value Works—Sort of—in Agile Projects

It’s easier to see and measure earned value in agile projects. At the end of every iteration, the team shows a demo, and explains what was done. It’s possible to calculate the cost of all the user stories for that iteration.

The problem is that earned value of previous work has no predictive value for future work. For example, if the product owner asked for something, got it, but it wasn’t what the product owner really wanted? The team completed what was asked for, but not what was needed. How do you calculate earned value if you have to change the thing you already created?

Another example is if the team estimates two features as the same size at the beginning of the project, they may discover that implementing the features in a specific order will change the size estimation.

Even in an agile project, using earned value as a predictive measure, “We did this much and it cost us x, if we do twice that, it will cost 2x” doesn’t work. That’s because we are unable to accurately and precisely measure size for knowledge work.

If you can’t predict earned value over time, it makes sense to reconsider funding the entire project at the beginning.

Don’t get me started on earned value in any other lifecycle. Unless you are building chunks, you can’t measure earned value for a project. If you use an incremental lifecycle, you can see chunks when a chunk is done. But with an iterative or phased lifecycle, you can’t see anything except prototypes or documents.

Documents provide no earned value. They may make it easier to work across the space-time continuum, but they have no value to the organization as far as seeing how much you’ve produced and how much you have left to go.

If you can’t see what you’ve done and how much more you have left to go, you cannot predict funding needs, which is why so many project managers want their organizations to fully commit all project funding up front. I can’t blame them—once you’ve been bit by the we-don’t-want-to-give-you-money-finish-the-project-anyway, you learn to ask for all the money upfront. And, if you’re smart, you spend it because then you know you have what you need to finish the project.

Why Incremental Funding Works

Maybe you’re with me so far. And, if you’re a project manager, don’t you want to know you have all the funds you need in advance? If you’re part of the team who manages the project portfolio, don’t you want to know where to allocate your money?

This is the beauty of project portfolio management: you only have to know which money to allocate—which projects to fund—for now. If you commit to a project, you only have to commit for a time period. At the end of that time period, you can request a deliverable. In agile and incremental lifecycles, you will get a deliverable in that time period. You’re likely to get more than one. But in a phased approach to a project, you are not likely to see a deliverable unless you explain future funding is based on seeing that deliverable.

Seeing a deliverable reduces future project risk. It might even reduce future project cost, because you know earlier if there is substantial technical risk to a portion of the project. I’m sure you want to know about technical risk earlier rather than later. If you know about that risk, you can manage it.

Funding Projects is Similar to a Clothing Allowance

I first started thinking about organizational incremental funding for projects when my older daughter turned 15 and we gave her a debit card with a clothing allowance. I don’t know much about teenaged boys. I do know a fair amount about teenage girls, because I have two daughters. Teenage girls can spend all your money on clothes. Even then, they won’t have enough clothes.

When we gave debit cards to our daughters, we only gave them a half-year’s allowance for clothes at a time. We said, “What’s in fashion now might not be in fashion in six months, so don’t spend it all at once.” That advice helped in a few ways: our daughters had fun shopping, because part of the fun is the actual shopping, and they saved themselves from committing to fashion that did go out of style.

Projects and Strategies Evolve, too

The same kind of thing happens in organizations. At any given time, you think you can see what you need for the foreseeable future. If you commit the funds, or worse, actually pre-pay or buy resources, you have committed money you can’t recommit easily. You have also committed yourself to a strategy that may not be easy to change.

The more responsible action is to fund enough, or fund for now. Yes, if you want a project to start or to keep going, you should fully commit to it, but only for a given period of time. At the end of that time, you should request a demo or have a way to see some progress.

I bet you’ve seen this in your organization. You have a project that will save the company. And, if the project drags on, or doesn’t deliver, it won’t save the company. You need to stop funding it and try something else.

Or, you think the market is going in one direction. Then, either you or, worse, your competitor thinks of a disruptive technology, and bam! The projects based on the old technology are not worth doing anymore. They might be worth wrapping up. They might not be even worth that.

When you us incremental funding, you allow—maybe even encourage—your strategy to evolve.

Incremental Funding Helps Manage the Project Portfolio

As you manage the project portfolio, you can insist on these results from your project managers:

  1. Make sure there is a deliverable in the form of working product before each evaluation of the project portfolio.
  2. Ask for only the money required for the project until the next evaluation meeting. If the project manager doesn’t realize how much more the project needs, they can ask for more—as long as they show a deliverable.

As the project portfolio management team, you have a serious responsibility: Fully commit to the projects you commit to. No partway commitments. If you don’t have enough money for capital equipment, explain you don’t and when you might, and then see if it’s worth continuing this project.

You don’t get to play the we-don’t-want-to-give-you-money-finish-the-project-anyway game. That game erodes trust and begs the project manager and the project team to fake things.

Now, you have a periodic basis in which to evaluate the project portfolio. You can see the project deliverables, so you know where your money has gone. You never have to worry about good money flying out after a not-so-good investment. Isn’t that a delightful place to be?

© 2009 Johanna Rothman. This article was originally published on PMBoulevard.

One Reply to “Using the Project Portfolio to Move to Incremental Project Funding”

  1. Pingback: Gestão de Portfolio – Onde aplicar a energia organizacional? « ICA-TI

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