Why Agile Finance Can Help You Through This Economic Storm
Efforts to contain COVID-19 have quite literally shut down entire economies. Major cities, states, entire countries have ordered businesses to close and their citizens to stay home.
3.3 million Americans filed for unemployment benefits last week. That’s the highest ever in a single week. But even that unfortunate statement seems to miss the mark.
This article by the New York Times puts those numbers into a visual perspective. It’s simply stunning to see.
As is this forecast from Morgan Stanley. They predict US GDP will plummet by 30% next quarter. Given the global economy, these types of losses are being felt worldwide.
Fear is a rational and understandable reaction. How can you plan for the future in a time of uncertainty and chaos? Every leader needs to act now to weather the rough road ahead. It’s not going to be easy. One of the first things you need to do is change the way your organization spends money and allocates resources.
Your annual budget plan? That is now a fiction drafted in an alternate reality. That’s not your fault. Everything has changed in a matter of weeks. Organizations still need to plan. But how they do that needs to change. Strategy and planning need to be continuously refactored in order to respond and adapt to an ever-changing set of circumstances well beyond what used to be normal. Now is the time to be Agile especially when it comes to financial planning and analysis.
What is Agile Finance?
The ability to quickly pivot and adapt based on changing conditions and rapid feedback is critical to your survival. Today’s reality means finance functions need to redefine the way they deliver value to both internal and external clients.
One of the temptations in finance is to assume that you actually have control over what happens. You set priorities, allocate the budget, and follow your pre-defined processes and plans, check in again next year. That control is simply illusory.
We’ve all had the experience at the end of a fiscal year of desperately spending the budget money that you had not spent so you’ll get the same budget next year. It is also almost universal that if you budget a project at $100 million, that $100 million will be spent come hell or high water.
That’s a behavior you want to discourage, not reward. You want to encourage autonomy, quick decisions, and innovation. Especially now. Rigid controls and assumed outcomes are not the way through this.
Remove Your Bureaucratic Roadblocks
What is needed now is flexibility. Especially when it comes to priorities and projects. Organizations cannot decide a good idea shouldn’t be executed because you didn’t think about it nine months ago. Or even 9 weeks ago. The opposite is true as well. A project that made sense pre-COVID may no longer work. That’s why strategic flexibility can be a competitive advantage. To get that you need a light process that provides just enough rules and guardrails. Just enough to ensure accountability and alignment. No more. That is where creativity, innovation, and adaptability lie.
You need a Minimum Viable Bureaucracy.
Speed, rapid adaptation, and quick decisions thrive when they aren’t bogged down by process and rules. These characteristics also make it easier and cheaper to change your mind or direction as conditions change. And they will. To build a system that empowers your response instead of inhibiting change.
Agile Planning And Budgets: Act Like A Venture Capitalist
At Scrum Inc., we work with a few venture capital firms. It’s an education in finance that we’ve applied in large companies and small. Good venture firms don’t fund projects. They fund teams and verifiable solutions to problems, and not just their first guess at a fix.
This approach is particularly important today.
Another lesson comes in how organizations allocate people and resources. Venture firms tend not to fund things in big blocks. They allocate in relatively small amounts. Try something out over a short amount of time then have the team demonstrate proof of what they have learned, how they’re adapting, and if what they are working on deserves more funding.
Organizations with Agile finance functions focus on similarly short allocation cycles. Then use fast feedback loops and rolling forecasts to make their strategic decisions. They allocate as required by reality and not by what is demanded by long term plans.
Budgeting and finance functions should be as flexible and as autonomous as possible at the business unit level, while still being held accountable for driving results aligned to the organizational objectives.
And really think like a venture capitalist. Invest more in the things that are showing measurable value delivery, and pull back or stop allocation to those that aren’t. Ruthless prioritization is your only pathway to riding this out.
Know When To Say No
An Agile finance function excels, in part, by funding the right things at the right time. To do that you must know when to say no. And be decisive about what is not getting funded.
An enterprise backlog of priorities needs to be crystal clear. Every funding request should be assessed as to how it will unlock the value of the overall priorities. How it helps execute the organizational vision. Funding everything means you are throwing your money away. It means nothing is actually a priority. Prioritization means choices.
Only focus on those things that align with the organization's top priorities. In our experience, usually, only 20% of the work your people are doing actually has value for your customers. The rest are things the customer doesn’t really want or need, and a not-insignificant percentage are things that nobody wants. But they still get funded. Because they were funded last year.
A strategic Agile finance function is defined as much by where they don’t allocate resources as to where they do. Just doing what you planned on doing in January is always a mistake, in this period.
The last thing organizations need these days is for their options to be limited by an outdated finance function that doesn’t deal well with rapidly changing plans. The economy will make it through COVID-19. Eventually. Don’t let resistance to change be the reason your organizations don’t make it through as well.