How to Do Agile Budgeting in Scrum

How to use agile budgeting methods in Scrum and how they enable you to deal with uncertainty and give you full control in your innovation project.

January 2021
min read
Motius GmbH
The Best Place for Techies
R&D Company since 2013
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In a typical early-stage R&D project, the main project vision gets clearer along with the development, as requirements are sorted out during the project implementation. However, it is not clear how exactly we are going to realize that vision. Most often, we determine the exact way through iterative research phases, analyses, workshops, etc. This means that we usually find ourselves in dynamic project environments in which needs and requirements change regularly.

Because of that, we use iterative project management methods including e.g. Scrum. As these methods only make sense with appropriate contracts, we also use agile budgeting methods. In this blog post, we are going to introduce you to our agile budgeting process along with the example of a road trip. Ready to go on a journey with us?

Scrum And Agile Budgeting: Dealing With Uncertainty

Suppose I would like to go on a road trip from Munich to Spain. Although I know that I want to end up in Spain, I do not have an exact plan about which city it should be. The only thing I know is that it should be a city at the beach like e.g. Barcelona or Valencia. So, I ask my travel agency to help me. Let’s suppose that this travel agency is Motius.

What they know is that I want to go to Spain, that I have certain requirements, and that there are several milestones along the way that I would like to fulfill (see graphic below).

Since they have my initial requirements but do not yet know where I want to end up, how I get there, and if my requirements change over the course of the trip, we decide to take on an agile approach, especially an agile budgeting approach. This means that we are going to go step by step and make our own way instead of planning everything ahead with a huge risk to fail at any given step. To do so, we sign an agile contract. Of course, Motius knows from previous, similar road trips what’s necessary to bring me to a city at a beach in Spain. Based on their experiences they know what effort it takes to find a hotel near the Eiffel Tower or how much a croissant costs in France. Based on all these references we define a fixed budget to reach that overall goal.

Scrum And Agile Budgeting: The Artifacts

In Scrum, there are several very important artifacts that guide the process.

First, there is the product backlog which lists everything that is known to be needed in the project according to your priorities. We listed some examples in the graphic below. Having all these aspects listed according to your priorities makes sure that the most important aspects are fulfilled first and enables agile budgeting.

Secondly, there is the sprint backlog. This is the list of identified requirements that you need to fulfill in your next sprint in order to reach your sprint goal. Often, the sprint backlog comes in the form of user stories, i.e. statements from the user point of view which narrow down the requirements from the product backlog, so that you know exactly what to do in the next sprint. The graphic below makes this clear. Again, the sprint backlog with defined requirements and small, estimated tasks enables you to apply agile budgeting. Whereas the initial estimations are based on experiences with similar tasks, they get reviewed and adapted throughout the project.

In my project, I am now at the point where Motius and I have defined the artifacts with my knowledge and their experts, the initial plan and boundaries are set with a fixed budget in our agile contracts, I know that different Scrum tools are going to help to deal with complexity and uncertainty.

Now it’s time to start the first sprint.

Scrum And Agile Budgeting: Fixed Deliverables Without Risks

Sprints usually last two weeks. In short projects like my road trip, they can also last one week. At the beginning of each sprint, the client (in this case that is me) decides which tasks from the product backlog are going to be worked on during the upcoming sprint. Then the Motius team identifies the necessary tasks from the sprint backlog and determines how many of these priorities it can get done in the next sprint.

Based on that, together we define a sprint goal and determine a fixed deliverable for that sprint. With the agile budgeting approach, Motius and I agree on the content and the budget for the next sprint. Usually, I set these budgets along with the initial estimations that Motius has made before. This means that I am always in control of the project budget. Further, I provide the “definition of done”, i.e. what needs to be delivered so that I consider the task as done. In other words: fixed deliverable and fixed price = no risk.

So let’s say that, based on the product backlog, the goal of the next sprint is to meet a friend in Paris. Now we look at the sprint backlog and pick those user stories that Motius needs to tackle in order to reach those goals.

Next, we need to give each user story so-called “story points”. The amount of story points indicates the complexity, effort, and uncertainty of the task and thereby determines how much the task is worth.
Here’s an overview of what the previous steps result in with respect to our road trip:

So, if I approve every user story, its scope, and the story sizes, Motius starts implementing them.

After the sprint, we discuss the achievements and present the deliverables of the sprint. Only if I approve that all deliverables are actually delivered, I get the invoice for the first sprint. Once I have approved the deliverables, we plan the next sprint based on the progress we made before – until we finally arrive at our goal.

Scrum And Agile Budgeting: What You Need to Keep In Mind

Before we finish up the blog post, there are two aspects of iterative project management and agile budgeting that I want to emphasize.

At the beginning of a project, certain user stories might have more story points in order to factor in risk. But no need to worry: as the project evolves, Motius will be able to better calculate the risk and therefore adopt the number of story points for those user stories (agile budgeting, remember). What happens when we plan the sprints. For me, this means that my risk gets minimized while my costs get capped. Moreover, this might also enable me to spend the extra story points on features that I did not plan with before, e.g. not just a French croissant but also a delicious French coffee.

The other thing to keep in mind is that we gain knowledge with every sprint. Such learnings require us to change the artifacts from the beginning and iterate our way towards our goal. The iterative project management with its agile budgeting is perfect for that.

Agile Projects For Cutting-Edge Innovation

Obviously, the road trip example is just an analogy. Motius is not a travel agency but an R&D company that develops cutting-edge innovations. I chose that example because it simplifies large parts of the agile project management approach, especially agile budgeting.

All in all, agile budgeting enables you to deal with uncertainty, gives you full control, and promises a tremendous knowledge gain along with the sprints. In other words: it puts you in a perfect position to launch innovative products that revolutionize your industry and take you ahead of your competitors.

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