What is lean budgeting?

This concept also increases throughput and improves the productivity of cross-functional teams. It’s an approach often used by organizations that employ agile methodologies because its flexible, iterative nature is more compatible with lean and agile practices.

Lean budgeting prioritizes value streams over projects. A value stream is the steps to deliver a solution that is valuable to customers. Solutions can be products, systems or services provided to customers.

Each company defines its value stream on its terms. Some companies consider a value stream to be a team delivering a specific value to customers. Other companies consider it to be an end-to-end solution across the entire company to give the customer value.

Lean budgeting promotes innovation and improvement. It gives teams permission to come up with new ideas or offer feedback that might benefit the company. Plans are changed and steered based on the information and data collected, which helps organizations spend more efficiently.

With traditional budgeting, leadership sits down and develops a budget for the upcoming year based on the expenses of the current year. While this approach is common and used by many companies, it can be harmful and inaccurate.

Traditional budget processes aren’t flexible to market or organizational changes. They can also put a monetary limit on the innovation and change that is often needed to keep pace with competitors.

Now, let’s look at lean budgeting. The concept is the same as lean management that businesses use for their operations; it’s adapted to fit budgets.

With a lean budgeting approach, projects and systems are evaluated to determine where money is budgeted. It aims to create a sustainable financial framework for the business to succeed while promoting growth and innovation.

There are many benefits to this type of budget approach. First, focusing on value streams helps businesses achieve a long-term impact. Instead of putting money into a project that might or might not be profitable, the focus is on a value stream that has already been proven to be profitable.

Other benefits discovered by companies using a lean-agile budget approach include:

• Lower overhead costs
• No surprises in budgets
• Improved collaboration
• Increased throughput
• Full financial control
• Enhanced employee morale

This type of approach gives leadership autonomy over portfolio decisions. It also allows teams to work together for a longer period, leading to improved morale and collaboration.

Lean-agile teams are long-term and self-sufficient. The teams make the decisions related to their specific value stream.

It won’t take a lot to transition to a lean budget approach. Most of the changes will have to come from the shift in mindset for the decision-makers. Change is hard and can be scary, so getting everyone on board will be a challenge.

The steps to take to transition to a lean budget include:

1. Determine the guardrails
2. Define how to evaluate the success
3. Set budgets for each value stream
4. Set appropriate organizational goals

With lean-agile approaches, it’s a game of continuous delivery and improvement. Teams are constantly evaluating performance and markets to revise and improve how the value stream operates.

Lean budget guardrails are the processes, guidelines and policies set for a specific portfolio. To achieve optimal business outcomes, it’s important to understand a lean portfolio management budgeting approach. Stakeholders and decision-makers should collaborate to decide the guardrails.

The guardrails will give guidance on how to allocate funding and what steps to take when budgeting for value streams.

With lean approaches, it’s important that teams continuously evaluate what they are doing to make sure it’s still working. Revising or adapting approaches is common, so a company’s decision-makers and stakeholders should also decide the evaluation process.

Once you have the budget guardrails, you can set budgets for each value stream. The budget amount should include the people and resources needed to support the value stream. With lean budgeting, you set budgets for a shorter period.

When giving value streams a budget, only focus on the next few months or do it per quarter. Evaluating each value stream and budget after a set time will ensure that you are still spending money on the value-added tasks.

Leadership should clearly define organizational goals. Each value stream should understand these and align its goals accordingly. Each portfolio might have a different set of goals.

And that’s okay if each team in the organization knows how the overall organizational structure is formed and what it’s working toward.