Managing costs provides a false sense of security

This content is syndicated from Energized Work | agile in action by Simon Baker. To view the original post in full, click here.

In the software world, budgets are mostly about headcount and capital expenditure. Headcount is managed by cost per unit, where a unit is a person considered to be more or less a uniform resource capable of producing fixed output. On a cost per unit basis maybe 100 people offshore are cheaper than 10 onshore. But in my experience, more people means more waste.

The hidden costs in remote working don’t seem to factor into the overall calculations that inform executive decisions to offshore. These hidden costs include increased coordination and transaction costs incurred by having to work harder to keep things moving forward in unison. Plus there are likely costs from increased rework resulting from poorer quality of communications. Collocation makes a big difference for me because I want to experience the chemistry of face-to-face interactions. Nevertheless, distributed teams can work. Look at 37signals. It’s more about having people with passion and capability on the team, wherever they may be, rather than just units who tick the boxes on a skills matrix.
Ritual budgeting
Budgeting has become such a ritual I wonder if managers think it gives them operational control of everything going on? The longer a budgeting exercise goes on, the more it appears to be a game about guessing the number in some finance head rather than designing a suitable financial package based on engineering reality.

I do wonder if some people get lulled into a false sense of security because they believe everything is safely under control as long as the budget is burning at the predicted rate, when actually this frame of mind might be taking attention away from mitigating the real risks. Don’t get me wrong - having a budget is important. It makes total sense to fix an amount of money to spend but managing activities from a budget perspective just fixes attention on costs. Looking at costs without looking at the benefits realized provides only part of the picture. It’s easy to run a project until there’s no money left and declare it a success because it didn’t go over budget. But what value did it actually deliver? How do we truly know it was a success?
Are the delivered benefits real or imaginary?
In conventional organizations, the financial controllers are far away from the project teams. I’ve got to question how effective the ongoing assessment of delivered benefits actually is in this setup. I’ve worked in a few places where benefits analysis doesn’t happen, or it happens too late to stop budget being wasted. I’ve worked in a lot of places where the benefits realized were as fictitious as the original projections in the business case. Someone has to validate the benefits are real.
Treat costs as investment
It’s not easy to run a project that consistently delivers benefits more valuable than the money spent. That’s why I believe costs should be managed as investment. This way costs get managed implicitly, focus is on generating value, and with continuous delivery it’s possible to validate assumptions and keep closing the loop on the business case to determine whether investment should continue.

Leave a Reply

Your email address will not be published. Required fields are marked *

twenty + twenty =

There are 101 ways to do anything.
To find the best way, sometimes you need expert help

What People Say

“Kelly was engaged as a Program Director on a complex business and technology transformation program for Suncorp Commercial Insurance. Kelly drew on his key capabilities and depth of experience to bring together disparate parties in a harmonised way, ensuring the initiate and concept phases of the program were understood and well formulated. Excellent outcome in a very short time frame. ”


“Kelly and I worked together on a very large project trying to secure a new Insurer client. Kelly had fantastic commercial awareness as well as his technical expertise. Without him I would never had secured this client so I owe a lot to him. He is also a really great guy!”


“I worked with Kelly whilst at Thoughtworks and found him to be a most inspiring individual, his common-sense approach coupled with a deep understanding of Agile and business makes him an invaluable asset to any organisation. I can't recommend Kelly enough.”


“Kelly is an Agile heavy-weight. He came in to assess my multi-million $ Agile development program which wasn’t delivering the right throughput. He interviewed most of the team and made some key recommendations that, when implemented, showed immediate results. I couldn’t ask for more than that except he’s a really nice guy as well.”


“Kelly revolutionised the way our digital department operated. A true advocate of agile principles, he quickly improved internal communication within our teams and our internal clients by aligning our business and creating a much enhanced sense of transparency in the decisions the business was making. Kelly also introduced a higher sense of empowerment to the development teams...”


“Kelly’s a leading program director with the ability to take charge from day one and keep strong momentum at both a program and project level driving prioritisation, resourcing and budgeting agendas. Kelly operates with an easy-going style and possesses a strong facilitation skill set. From my 5 months experience working with Kelly, I would recommend Kelly to program manage large scale, complex, cross company change programs both from a business and IT perspective.”


“I worked with Kelly on many projects at IPC and I was always impressed with his approach to all of them, always ensuring the most commercially viable route was taken. He is great at managing relationships and it was always a pleasure working with him.”


“Kelly was a great colleague to work with - highly competent, trustworthy and generally a nice bloke.”


“Kelly was a brilliant CTO and a great support to me in the time we worked together. I owe Kelly a great deal in terms of direction and how to get things done under sometimes difficult circumstances. Thanks Kelly.”


“Kelly came to the department and has really made a huge impact on how the department communicates, collaborates and generally gets things done. We were already developing in an agile way, but Kelly has brought us even more into alignment with agile and scrum best practices, being eager to share information and willing to work with us to change our processes rather than dictate how things must be done. He is highly knowledgable about agile development (as his active blog proves) but his blog won't show what a friendly and knowledgeable guy he is. I highly recommend Kelly to anyone looking for a CTO or a seminar on agile/scrum practices - you won't be disappointed!”


“Kelly is an extremely talented and visionary leader. As such he manages to inspire all around him to achieve their best. He is passionate about agile and has a wealth of experience to bring to bear in this area. If you're 'lucky' he might even tell you all about his agile blog. Above all this, Kelly is great fun to work with. He is always relaxed and never gets stressed - and trust me, he had plenty of opportunity here! If you get the chance to work with Kelly, don't pass it up.”



To explore how we can help you, please get in touch