Beyond Budgeting: Adapting to Modern Product Development | Martin Hinshelwood
👋 Hi, I’m Martin Hinshelwood from NKD Agility, and in this video, I discuss how traditional budgeting methods are holding organizations back in dynamic, fast-changing markets. Instead of rigid, annual budgets, we explore how Beyond Budgeting principles enable more adaptive, flexible, and value-driven financial management aligned with modern product development practices.
📌 Chapters:
- 00:00 – Introduction: The Problem with Traditional Budgeting
- 02:30 – Why Annual Budgets Don’t Fit Agile Product Development
- 05:15 – Missed Opportunities: The Hidden Costs of Rigid Budgets
- 08:45 – Adopting a Venture Capitalist Approach to Budgeting
- 12:00 – Real-World Examples: The Cost of Inflexibility
- 15:30 – Aligning Budget Cycles with Product Cycles
- 18:00 – Exploring Beyond Budgeting for Agile Teams
🎯 Who This Video is For:
• Product managers and project managers struggling with rigid budgeting cycles
• Finance leaders seeking to support agile product development
• Organizations transitioning from project-based to product-based operating models
• Teams looking for strategies to better align budgets with market opportunities
📖 What You’ll Learn:
• The limitations of traditional yearly budget cycles in dynamic markets
• How Beyond Budgeting principles support adaptability and value-driven decisions
• The benefits of treating budgets like venture capital funding for products
• How aligning budgeting with product cycles reduces missed opportunities
• Real-world examples of how rigid budgeting has led to massive losses
💡 Key Takeaways:
• Traditional budgeting creates inflexibility and unrealized value.
• Agile product development requires continuous adaptation, not fixed yearly plans.
• Product-focused budgeting empowers teams to allocate resources dynamically.
• Beyond Budgeting principles enable organizations to seize opportunities and minimize risks.
At NKD Agility, we help organizations align their financial practices with modern product development approaches. Ready to move beyond rigid budgets and unlock more value? Visit us today on
https://www.nkdagility.com
and let’s explore how Beyond Budgeting can transform your organization.
#agile #productdevelopment #productmanagement #projectmanagement #devops #agileproductdevelopment #agileproductmanagement #agileprojectmanagement #projectmanager #productmanager #productowner #scrummaster #professionalscrumtrainer #scrum #leanproductdevelopment
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In traditional budgeting, we take all, we spend a bunch of time once per year and have been a little bit factious but have a whole bunch of people in our organisation fight over how much money is going to be allocated to their pot, right? And then that’s their pot for the year. They know that if they don’t spend it, they lose it, right? If you allocate a million dollars to a particular project and they only use 500,000, next year you’re going to be thinking of giving them 500,000, and it’s going to be very hard for them to fight for a million, even if that’s just the normal ebb and flow of what it is we’re working on.
If something doesn’t fit within, like we spend such a long time building the budget and balancing it, right? Like a, like a, like one I’ve seen, the budget that countries have, it’s this massive, massive, massive book. We end up with not obviously as big as that because we don’t have as many things, but a big book of here’s what the budget is for the year. The problem is that five minutes after we’ve ratified the budget, that we put our stamp on it and said, “Yep, that’s our budget for the year,” the market changes, the state of the product changes, ideas change.
So if somebody comes up with an idea that’s not in the budget for this year, right? But the market opportunity is in a couple of weeks, we have enough time to build it, but we don’t have any budget, right? That’s maybe small enough that we can, there’s discretionary funding, but let’s say it was six months’ worth of work, so it’s a massive effort, massive endeavour, but huge, huge, huge payoffs. Then we’d probably do something, right? But where’s that balance in your organisation? That level, that scale of the payoff versus the cost. We have the money; we have to go find where’s that biting point and how much do we lose? How much value in the market do we lose because lots of things just don’t quite hit that biting point because we’re doing yearly budgets?
So there’s a bunch of things around Beyond Budgeting, which is how do we re-do budgets in order to be more effective? But effectively, the result that you want for your organisation is that you can fund the things that make sense at the time they make sense, right? So in the agile world, we’re getting working product in front of our customers as frequently as we can, right? So depending on what it is you’re building, that timescale might change. The manifesto says from a few weeks to a few months, right? Scrum talks about 30 days. 30 days is the maximum amount of time between getting things in front of your customers.
If you look at the Detecting Agile BS paper from the US Department of Defense, they talk about every iteration, including the first, getting your product in front of real customers. So not just to UAT, not just merely test users, but to real production users. So you’re going to production every iteration. If you’re doing that, if you’re getting to production every iteration, then that’s your pivot point, right? It’s not a yearly pivot point figuring out what we’re going to do, but it’s a much smaller pivot point.
So instead of allocating all the money at a single yearly point, we want to be ebbing and flowing. As you know, this project reaches a dead end, there’s not much more value to be had, so we’re not going to continue it. We’re not going to do more sprints; we’re not going to do more iterations at the moment. We’re going to move it into maintenance mode, which changes its cost profile. And for other things, there’s a new initiative. Some folks have come up with a great idea. Let’s fund that.
So you’re effectively looking at more of a venture capitalist or an entrepreneur-style budgeting model in that you’re not allocating all the funding to projects upfront. You’re allocating, you have a pool of finance available, like how much can we spend? You should know that on a regular basis. What’s our capability? And then we want to spend as little as possible to get the maximum value, and that ebb and flow needs to happen.
The difficulty in the traditional model is I had a customer recently who were doing big things. It’s manufacturing, and they’re making big things, big expensive things. And they had a machine that was faulty. Well, okay, it wasn’t faulty; it was just getting old. It was starting to make mistakes. It was creating less effective parts than the product needed, and they kept using it. The person who ran the machine wrote the business case for getting a new machine and started passing it up the chain. They did all the due diligence they needed to do, and it kept going up in the organisation because I think it was a 10 or 2 million spend. Therefore, it had to go fairly high in the organisation to get approval.
It got to somebody who looked at it and said, “That’s not on my budget for this year.” No. And that, that’s not in its budget for this year, no. It cost the company billions of dollars in recall calls to recall the product and resolve the issues that resulted from this machine that could have been replaced for 10 million dollars, and it cost billions. So that’s why we need to do something different.
The bit that you don’t see, like that’s an obvious one, right? That’s a catalyst for change because, oh my goodness me, we just had this huge cost. Why did we have it? Because of this 10 million dollars we didn’t spend. Well, let’s spend the 10 million. But the bit you don’t see is your unrealised value. If you think of in evidence-based management at the top of the curve in your market value of your product, you’ve got unrealised value on one side and value on the other.
So you’ve got value that’s in your product, your current increment, and then you’ve got unrealised value, which should be reflected in your backlog. But there’s more unrealised value than is actually in your backlog, right? We want to be continually adapting that unrealised value as the market shifts, as opportunities arise, as things change in the world. And it’s very difficult to do that within the bounds of a traditional yearly budget cycle.
So we need to adapt our yearly budget cycle into the context of we’re not doing yearly projects anymore. We’re building products, and a product has a budget, and they can allocate it however they like. Budgets for products tend to look like n number of people, right? The most, usually the most expensive thing, especially when we’re building software, is the people. So this particular product has the budget to support 100 people a year on it. That’s their budget cycle. And then within that budget cycle, they’re deciding how they allocate it, what features they allocate to.
Within that context, that can be a kind of halfway where your organisation might still be doing yearly budgets, but you’re able to adapt it to the product cycle. But there’s more you can do. Take a look at Beyond Budgeting.
