Financing an Outsourced Software Development Project

As I mentioned in my previous post, I’ve spoken at conferences this year about creating a sustainable agile transformation. Our culture is often embedded in our policies and procedures and HR and Finance play a tremendous role in preserving that culture. Since my last post was about HR, let’s get into talking to Finance.

The Role Finance Plays

Currency
Currency

Finance is one of the biggest influencers in how we look at our projects. Many organizations fund individual projects (called project-cost accounting), tying return on investment to funding. Doing things this way satisfies some regulatory and legal requirements – like Sarbanes-Oxley – effectively.

Since Finance is the source of the money that allows teams to develop software and deliver value, they are critical to our success. But some of the things that Finance has been asked – or forced – to do run contrary to some of the things we want to accomplish with agile. How do we approach this?

What Makes This Hard for Finance?

Companies need to make adjustments to their workflows when major events happen (like Enron and Worldcom). In general, Finance teams are very risk-averse. Once changes are instituted, a “don’t fix it if it ain’t broke” philosophy kick in and groups are resistant to changing further. As change agents, we need to understand this proclivity and do what we can to alleviate those concerns.

Additionally, in many cases, Finance changed from cost-center accounting (funding teams and groups) to project-cost accounting because we, as project managers, asked them to make the change. But in doing so, we created issues as funding relates to agile transformation.

What Can Finance Do Differently?

In project-cost accounting, we create projects and move people to those projects. So the first thing we need to do is find a way to move from project-cost accounting to cost-center accounting. We want to create long-lived teams and drive work to those teams. Funding organizations is the key to maintaining and persisting teams.

The second thing is to introduce other models for funding our work. Wouldn’t it be better if we could make decisions at key points in a product’s development cycle to decide whether or not to continue work? New financial thinking, like Beyond Budgeting and the concept of Innovation Options from David Binetti, can be powerful tools for your Finance team to do what they do best – figure out where the best investments are for the company.

The last piece is related the first one. If we can move to cost-center accounting, we can avoid some of the pain associated with our annual budgeting processes. When we fund organizations, it’s easy to calculate costs. We don’t have to do as much bottoms-up forecasting, figuring out what percentage of a developer a project needs. If we create stable teams, we create predictable and effective teams.

Closing Thoughts

Finance is critical to creating a sustainable agile transformation. Without changing how we fund work, we will end up persisting the same mindsets that led us to pursue agile in the first place. Approach your Finance team with a helpful attitude and a desire to help. Help them understand what you’re trying to do and how the current process and policy conflicts. And then offer your assistance to effect change.

Once we begin changing the system and getting our partners in HR and Finance on board with our plans, we can work on the fine-grained stuff and really get our teams humming.

Feliz entrenamiento, mis amigos! (Happy coaching, my friends!)

Bill DeVoe