Value-Based Budgeting (VBB) stands at the forefront of financial evolution for tech companies, transcending traditional budgeting norms by requiring a justification for every expense period. Its effectiveness has been demonstrated across diverse sectors and a staggering 500 companies, yielding tangible and significant results. When applied within the technology domain, VBB proves to be a strategic tool, optimizing expenditures through three pivotal dimensions: Strategy, Structure, and Productivity.
To harness the full potential of VBB in the tech sector, a methodical 4-step approach is recommended. The first step, Diagnosis, involves gaining visibility into current spending, conducting interviews with business areas, and determining the initial size of opportunities. This phase also identifies top financial aggressors and presents hypotheses for improvement.
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The subsequent step, Portfolio refinement, aligns with Lean portfolio management practices. It entails a meticulous examination of each engineering project, evaluating their reason to exist and classification. This process aids in identifying projects that can be descoped, delayed, or canceled entirely, as well as uncovering unnecessary work that may be draining resources.
The third step is a critical phase in the VBB process
Optimization, the third step, is a critical phase in the VBB process. It involves identifying ways to reduce costs for refined projects, such as technical de-scoping, code re-use, relocation to lower-cost locations, and improvements in agile development and technology. Simultaneously, it pinpoints opportunities to reduce the cost of necessary work, ensuring that resources are allocated efficiently.
The methodology developed by Falconi adds depth to the optimization process by evaluating agile structures from three perspectives: Connection to Strategy, Structure, and Productivity. This involves assessing whether teams are aligned with organizational priorities, determining the appropriateness of team sizes and role distributions, and maximizing the value derived from each squad. It ensures that the level of investment aligns with priorities and that the strategy for utilizing internal or third-party staff is coherent.
In the final step, Transition to the new operation, the focus shifts to the implementation of the identified improvements. This phase encompasses the rollout of new ways of working, the establishment of controls for defined improvements, the rollout of the Company Digital System, implementation of a footprint strategy, and the treatment of root causes. It also includes the follow-up of action plans and accounting for the results of the implemented improvements.
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Falconi’s methodology directly addresses the concerns
Given the prevailing skepticism and hesitations among leaders regarding the efficiency of agile structures, Falconi’s approach emerges as a beacon of optimization. With three out of four leaders questioning the existence of efficiency gaps in applying agile structures and a similar proportion expressing reservations about investing efficiently in them, Falconi’s methodology directly addresses these concerns.
Furthermore, the statistics reveal gaps in the implementation of agile structures, with only 44% of companies directly connecting squad performance to business objectives, 58% having inadequate squad sizing, and less than 20% measuring squad productivity. Falconi’s approach, therefore, becomes instrumental in bridging these gaps and optimizing the application of agile structures through the three dimensions of Strategy, Structure, and Productivity.
Strategic financial management is not just a necessity
In a real-world application, a company enlisted Falconi’s expertise to execute the refinement and optimization steps. The result? A remarkable 21% cost optimization, attributed to a leaner portfolio and increased efficiency of agile teams. This success story underscores the transformative power of VBB and Falconi’s methodology in navigating the complexities of the tech landscape, proving that strategic financial management is not just a necessity but a catalyst for sustained growth and innovation.
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Henrique Melillo
11+ years of global experience
Expertise: Financial and Operational Efficiency in industries such as construction, telecommunications infrastructure, public health, financial, and food & beverage.
Education: BBA & Finance at Insper, Specialist in Operation Management from the Wharton School of Business and Strategy Execution from Erasmus University Rotterdam
