Here’s Why Finance and Risk Management Should Embrace Agile Approaches
And move away from traditional project management
And move away from traditional project management
Companies want to make an impact while also making money. Unless they are a non-profit or a charity organization. Then they wish to make an impact and financially survive. Regardless, money is (almost) always a major factor.
Companies wish to ensure they use their resources and people wisely. They wish to maximize the value while preferably minimizing their spending to achieve that value.
This means that companies need to have a close eye on aspects like:
impact —are we creating value for the user, customer, and company?
cost and resources — are we spending our money and other resources wisely?
people — are our people working on the right things?
time — are we achieving our results when we want them?
risks — are we sure we aren’t needlessly wasting our money, resources and people?
quality — do we deliver products of the quality we desire?
Regardless of the approach, these aspects are important. But the traditional project approach and agile are managing this entirely differently.
How traditional project management builds control
I used to be a project manager. Every project management approach I used (and every project that I have been involved in whatever my role was) had a similar approach:
You start by getting a firm understanding of the goal of the project.
Based on that, experts will analyse what needs to happen to achieve that goal.
Then these experts will determine what resources are required and which people should be working on the project.
Next, experts that will create the product will determine the work that needs to be done including an estimate of the time and effort it will take.
Finally, a project manager creates the project plan depicting all the work identified to be required. This plan includes a projected due date, projected required resources and people, projected costs, and a risk management plan.
During execution, the project manager ensures the project stays on track, managing deviations in scope, time and budget.
This is a great way to create products when you know what you build will bring the desired value and impact. The people creating the product will have a good idea of what to build and they will not be surprised while building. The end product will satisfy the needs of the users and make the desired impact.
But how often is this the case?
When traditional project management doesn’t work
Traditional project management can be a great way to achieve goals. But more often than not, this approach falls short. The reason is that traditional project management is suited for the complicated domain. This is when analysis by experts will bring you the desired results. But most product environments don’t fall into the complicated domain.
Most product environments are in the complex domain. And in the complex domain, there’s no direct correlation between thorough analysis and achieving the desired results.
A better way to achieve the desired results is by doing a small experiment, receiving feedback, and then making decisions based on the feedback.
This sense-probe-respond response fits the Agile approach. Instead of focusing on analysis and creating output, you verify regularly if you’re on track to achieve your goal.
This has an impact on the aspects we identified earlier in the article. You need to assess impact, cost, resources, people, risk, time, and quality in a different way.
The false idea that Agile approaches don’t control time, scope and budget
Agile approaches are perfectly suited to control topics like impact, cost, resources, people, risk, time, and quality. Still, many who are skeptical of Agile believe these approaches fail in the areas of controlling time, scope, and budget. This is why many finance and risk departments don’t like Agile.
Before I address the false notion that Agile doesn’t allow for these controls, I wish to highlight how traditional project management approaches are no alternative in complex domains. As the plans are created based on analyses full of assumptions. And in complex domains, you can’t build on assumptions, only on facts. With that, any idea of financial and risk control is false.
How Agile approaches build control
Agile approaches do offer the solution. This is Agile’s answer to tackle key aspects:
Impact
Formulate what you wish to achieve, and what impact you wish to make. Also, identify how you will assess if you are progressing towards this goal of making an impact. As an example, you can do this by stating “We are successful when we achieve … of our users ….”. Make your goal measurable and ensure you regularly check if you are progressing towards the goal.
Do this often to allow yourself to be in control as much as you can. There’s a sweet spot. Often, you can’t expect to do this on a daily basis. Typically, once a week to once a month will suffice.
At these check-in moments, you can discuss many things, like:
are we on track to achieve our goal?
is our goal still realistic? If not, what does this mean for the effort and money we spend on this journey?
could we even be more ambitious? If so, how can we expand upon our goal?
In a complex domain, the only way to understand if the product is making the desired impact is to verify this often.
Cost, resources and people
The regular check-ins I discussed just now also allow you to have your eye on the costs, resources, and people. With every check-in, you have more information on the viability of the endeavour. And you will have more information on what you still wish to achieve to meet your goal.
Every check-in can be a decision opportunity. Does it make sense to continue investing or have we achieved enough? Should we use fewer people and money? Or should we spend more? What makes the most sense based on what we learned? This flexibility is a major benefit of an Agile approach. This is the place where finance should be to control costs.
Risk
Risk management is a separate activity within a traditional approach. But it is ingrained in Agile approaches. Because you wish to remove the risks as soon as possible by facing them head-on.
Is there a risk that users won’t like your product? Then aim to have an answer quickly. Create a mock-up or a rudimentary first version and learn from the feedback.
Are you unsure if the solution you envision can handle the expected capacity? Focus on that and build a Proof of Concept to verify the capacity worries.
In complex environments, the only way to be certain is to verify your assumptions by building, gathering feedback and evidence and then learning from it.
In complex domains, the only way to manage risks is to face them head-on.
Quality
Quality assurance is even more ingrained in Agile approaches than risk management. Your product increments should adhere to the agreed quality guidelines. Because without doing so, it will be near impossible to have everyone on the same page to learn from what was built.
Instead of checking for quality, quality is at the core of building the product.
When things are complex, Agile beats traditional project management
Traditional project management approaches are great in the right domain. This is typically an environment where experts can find the right way forward through analysis. This then allows people to create a detailed plan. Following the plan and delivering accordingly assures you are making the desired impact.
However, when the domain becomes complex, traditional project management approaches fall short and provide a false sense of security. Here, you are better off using an Agile approach where you focus on the desired outcome and have regular moments of inspection to ensure you are on track or whether you need to adjust your course.
Agile approaches are perfectly suited to control the desired impact, cost, resources, people, risk and quality. It’s entirely different from working in a traditional way. But gets the job done in complex domains. Which should be a delight for people in Finance and Risk Management.
First release November 2022