When it comes to budgeting agile projects, new project managers may run into new, radically different challenges that a traditional, waterfall project management style will not have to deal with. Traditionally, determining a project’s budget is something that happens towards the start of a project, based on the amount of work estimated, the salaries of the employees, any indirect costs a project may face, and whichever other expenses may arise. Agile project management, however, is very different.
Agile methodologies require a fundamentally different approach to project cost management than traditional, predictive methodologies. The predictive methodology analyzes the cost of a project towards the beginning.
The planner first lays out the activities that need to be undertaken for the project to be completed, predicts how much each activity will cost the team, and then adds everything together, factoring in the schedule and other expenses. However, this approach is not only incompatible with agile management, it often fails to anticipate unexpected elements that may arise in a project.
An advantage of agile management is that it allows for changes to be made to a project midway through development in response to customer feedback, which can often be crucial to a project’s success or failure. Many projects fail due to a flaw in the design or project plan that was discovered far too late, and the adaptive approach in agile mitigates this. As a result, an agile project manager must also take a different approach towards budgeting as well, one that is just as flexible.
One approach is to estimate budgets from a “top down” approach as opposed to a traditional “bottom up” approach. During the first few sprints, the work the team is putting in is analyzed to determine the length of time needed to complete each story point, the resources required, and the amount or relative effort involved. As a result of this data, a project manager can compare this to the amount of hours and time needed to complete the overall project and get a firm grasp on how massive the overall budget ought to be. Through the same mechanisms that agile projects use to determine the expenditure of effort and the time needed for each project, a project manager can use it to determine the amount of budget involved.
Difficulty Estimation
There are a variety of different methods one can use to estimate the difficulty of each sprint. Each requires communication with other team members, and over the course of a few sprints, one can begin to develop a baseline for how much effort each task will take. This is typically measured in “Story Points”, generally grouped in a fibonacci-esque scale and estimated relative to the difficulty of other items in the backlog. From there you can move on to one of two activities
“Planning Poker” relies on team members’ abilities to estimate costs. Each item from the backlog is pulled, shared with team members, and each shares how difficult they believe the activity will be. If any disagreement ensues, a vote is held.
“Affinity Grouping” is another possibility. Rather than having each team member vote on the number of story points themselves, the items are instead ordered in terms of easiest to hardest difficulty. Team members may discuss among themselves which order the activities should be in and review the results.
In this way, one can begin to estimate the amount of relative error for each activity in the backlog. By combining this with the number of person-hours needed for each task, one can estimate the budget needed for each item. Through this methodology, one can understand the budget required for each sprint, and from there, the overall cost of the project. Any stakeholders in the project should then be informed of the overall costs estimated, who can make informed decisions on which direction the project should take.
(Project leadership waterloo)
A good way to track a project’s progress is a burndown chart, which charts the number of story points against the planned progress of a project. A burndown chart tracks the amount of work yet to be completed, while the alternative, a burnup chart, focuses on the work that has already been completed. Which one to use depends entirely on the project manager. Towards the start of a project, a burnup chart can help motivate the team by allowing them to look back on what has already been completed.
On the other hand, you might also want to use a Kanban chart. A Kanban chart is suited more towards flow based agile projects, so whichever method you choose will be closely tied with whichever agile method the entire project is built around. Kanban charts track lead, cycle, and response times, allowing team members to see where work has been stalled and where work is still on track.
(project leadership waterloo)
By tracking the team’s progress relative to projected progress, it’s possible to determine whether a project is going under or over budget, and make adjustments accordingly. If a project is going over budget, it becomes prudent to adjust the project’s scope and goals accordingly, or to discuss any problems that may have arisen with any potential stakeholders
Conclusion
In order to successfully manage a project’s cost in an agile project, a manager must fundamentally shift their way of thinking. Estimating project costs towards the start of a project is much more difficult in an agile project versus a traditional waterfall project, however this does not mean that it is something that should be skipped. Rather, a project manager should ensure that a project’s budget is managed from month to month, ensuring that progress is made according to forecasts. A good agile project manager should be able to budget the amount of time a project takes, setting a release plan and project road map early on and ensuring that the project remains on schedule. Moreover, a project manager must supplement these estimates with information gained from previous projects as well as the first few sprints. In this way, they can appropriately estimate whether the project is going over budget.
Peter Carr (2019) Agile project cost management. Project Waterloo. https://projectleadershipwaterloo.wordpress.com/2019/12/16/agile-project-cost-management/
Corbin, M. (2022, January 26). Cost management in agile projects [effective ways]. Official Teamly Blog - Official Teamly Blog - Your Project Management Resource. https://www.teamly.com/blog/cost-management-in-agile-projects/
Agile budgeting: How much will it cost?. Agilest®. (2016, December 16). https://www.agilest.org/agile-project-management/budgeting/
Shevlin, K. (2022, January 11). Tips for effective agile budgeting and forecasting: Toptal®. Toptal Projects Blog. https://www.toptal.com/project-managers/agile-program-manager/tips-agile-budgeting-and-forecasting
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