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How Budgeting Impacts Digital Transformation

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Traditional budgeting in large enterprises interferes with digital transformation success. When projects are approved for a limited budget cycle (say 1 or 2 periods), the project’s value and potential to bring digital transformation begins to diminish as soon as funding stops. On the other hand, if the projects are funded with adequate sustained investment value can be maintained and increased over time. This consistent budgetary support brings about digital transformation. Technology projects have been operating for over fifty years and the lessons learned in that time will help us create better long-term solutions moving forward. For businesses looking to transition into more agile operating models, allowing for creating software operating models will greatly enhance business value and agility.

The Problem with Traditional Funding

The classic funding model for technology projects, that has been the norm for the past fifty years, starts with a business case for change. The project includes requirements, function points, an estimating model, and a work plan all rolled up into a budget request for funds allocation. When the project is approved, resources are provisioned and the work plan is initiated, working toward a completion date. What is missing from this scenario is the impetus for change. Most of these large projects resulted from a long period of dormant activity with the existing technology. Even though maintenance may have been performed on the original solution, this will not promote digital transformation. Without a sustained reinvestment plan, a gradual obsolescence turns into a mountain of “technical debt”. This debt will eventually interfere with business agility and competitiveness.

Moving Toward Agile Business Models

For businesses that desire agility and want to promote digital transformation need to not only speak about it but weave it into the overall strategy. A part of this new strategy is a reimagining on budgeting. A better alternative to the traditional project-based funding is to consider a sustained development program for the long-term, which emphasizes continuous development or “agile” methods. By reorienting the organization toward an operations funding model of this type, organizations reduce business risk associated with technical obsolescence and increase the lifetime utility of their software assets. Any budgeting strategy has its potential downsides. In the case of this agile funding and management approach, software investments can be greater on a net present value basis and it firmly places the software development program as an operations concern to be managed effectively. This potential downside is reduced when the organization and its stakeholders have the vision of digital transformation.

Business agility, as supported by software investments, is a key reason for the popularity of software as a service model. These organizations have converted to operational budget models, and have outsourced the ongoing development and maintenance. Business agility strategies see results from the continuous gain of utility delivered by new software features and the organization’s ability to take advantage of these features. These enhancements will avoid the organization from becoming a laggard and can provide a competitive advantage through the constant digital transformations.