Concepts
Stage Gate Funding
Stage Gate funding is one of the most traditional ways to fund agile projects. This model involves dividing the project into different stages. Each stage is followed by a review or ‘gate’ where the results are presented before stakeholders to make decisions on whether to continue, stop, or pivot the project direction.
Key attributes of Stage Gate Funding include:
- Clear stages : Projects move through a defined set of stages.
- Verification at every stage: Each stage ends with a gate or checkpoint that requires approval before proceeding.
- Feedback and adaptation: If the objective is not achieved or if better alternatives emerge, stakeholders can choose to stop, pivot, or continue.
Here is an example of how stage gate funding can be applied in agile product development:
Let’s say a software development company plans to develop a new software product using agile methodologies. The project is divided into various stages, say, Idea Generation, Prototyping, Development, Market Release, and Maintenance. The company allocates specific budgets for each stage. The progress at each stage will undergo a review, and if the product does not show promising potential or encounters major unforeseen issues, the stakeholders can halt the funding.
Continuous Funding
Continuous Funding, also known as Evergreen Funding or Annualized Funding, is a relatively new funding model that aligns better with the agile methodology. It involves allocating a fixed amount of capital on an annual basis rather than assigning a budget per project.
Key attributes of Continuous Funding include:
- Regular funding: A certain amount of money is allocated to teams regularly (monthly, quarterly, or annually).
- Deprioritization of non-value adding features: Since funding is continuous, teams focus on delivering high-value features first.
- Change Adaptation: The continuous nature of funding allows the project team to adapt to changes rapidly and efficiently.
An example of Continuous Funding can be seen in tech startups:
For instance, a tech startup might decide to allocate $1 million per quarter for their product development teams. These teams will then prioritize the delivery of features based on the product backlog, customer needs, and strategic business goals. Any changes in the market or customer preferences can be swiftly incorporated into their plans due to the consistent flow of funding.
Comparative Analysis
Both Stage Gate Funding and Continuous Funding can be effective depending on the context but there are clear distinctions between them:
| Features | Stage Gate Funding | Continuous Funding |
|---|---|---|
| Flexibility | Low – Product must be developed as planned in each stage. | High – Frequent reassessments of goals are possible. |
| Risk Management | High – Each stage is verified before advancing. | Moderate – As changes can be incorporated any time. |
| Funding Flow | Discontinuous – Based on specific stages | Continuous – Regular funding regardless of stages. |
| Change Adaptation | Slower – Any pivoting requires to restart a stage. | Faster – Seamless integration of changes at any moment. |
Conclusion
While both Stage Gate and Continuous Funding have their pros and cons, it’s important to note that the choice of funding model should primarily depend on the nature of the product being developed, the structure of the team, and the volatility of the market. As CSP-PO aspirants, understanding these models and their implications on agile product development is a necessary step in dealing with real-world challenges. It’s also encouraged to periodically reassess the funding strategy in line with changes in the organization or market.
Answer the Questions in Comment Section
True or False: Agile product development can be funded through a fixed budget model.
- Answer: True
Explanation: The fixed budget model is a traditional approach to fund agile product development. Here, the budget is set at the beginning of the project and changes are discouraged.
Which of the following is not an approach for funding agile product development?
- a) Fixed budget model
- b) Regular project funding
- c) Unlimited funding pool
- d) Operation-based funding
Answer: c) Unlimited funding pool
Explanation: An unlimited funding pool might seem ideal, but it is not a practical or effective strategy for funding agile product development.
True or False: The operation-based funding approach to Agile management permits the allocation of funds based on the continuation of business operations.
- Answer: True
Explanation: The operation-based funding model allows funds to be allocated based on the business needs and the continuation of business operations.
In which model is the budget set at the start of the project and later changes are usually discouraged?
- a) Fixed budget model
- b) Regular project funding
- c) Operation-based funding
Answer: a) Fixed budget model
Explanation: The fixed budget model revolves around a firm budget limit set at the project’s beginning, typically discouraged from changes whatsoever throughout the project.
Which of the following approaches to Agile funding allows for flexible, continuous re-evaluation of investments?
- a) Fixed budget model
- b) Regular project funding
- c) Operation-based funding
Answer: b) Regular project funding
Explanation: Regular project funding allows for continuous re-evaluation and adjustment of investments, making it more flexible than a fixed budget model.
In the operation-based funding model, costs are considered as _____ expenses.
- a) Capital
- b) Operating
- c) None of the above
Answer: b) Operating
Explanation: In the operation-based funding model, costs are considered as operating expenses, helping to maintain the day-to-day operations.
True or False: A fixed budget model is the most flexible way to fund Agile product development.
- Answer: False
Explanation: A fixed budget model is a traditional funding approach that offers less flexibility as the budget is usually set at the start of the project and typically not subject to changes.
In the regular project funding model, teams get funded based on _____.
- a) Pre-set project goals
- b) Mid-project evaluations
- c) None of the above
Answer: b) Mid-project evaluations
Explanation: In the regular project funding model, teams are funded based on their performance in mid-project evaluations and other assessments.
Fixed budget models have low down-side risk. This statement is _____.
- a) True
- b) False
Answer: a) True
Explanation: Fixed budget models indeed have low down-side risk as the budget is set at the start of the project, and any under-utilization gets saved.
Fixed budget models are more suitable for _____ projects.
- a) Long-term, uncertain
- b) Short-term, predictable
Answer: b) Short-term, predictable
Explanation: Fixed budget models are trailblazing for short-term, predictable projects where the scope and costs can be accurately estimated upfront.
True or False: Regular project funding is better suited for long-term and high uncertainty projects than a fixed budget model.
- Answer: True
Explanation: Regular project funding, with its middle-of-the-project evaluations, brings more flexibility and is therefore often better suited for long-term and high uncertainty projects when compared to the fixed budget model.
In Agile Product Development, most of the funding decisions are _____.
- a) Made at the start of the project
- b) Made during the project
- c) Both
Answer: b) Made during the project
Explanation: In Agile product development, funding decisions are made more flexibly during the project itself, allowing adjustments as the project evolves.
I think the MVP (Minimum Viable Product) approach is great for Agile funding because you can validate your idea quickly.
Lean Startup methodology is another approach that can complement Agile product development.
Great post! Very insightful.
MVP sometimes fails if stakeholders are not aligned. Any thoughts?
Thanks for this enlightening post!
How does Lean Startup differ from MVP in Agile funding?
Excellent write-up!
Thanks for sharing, learned a lot.