Escaping the Build Trap

Chapter 23. Budgeting

One of the factors that leads to the output-over-outcome mindset in organizations is the way that they do budgeting. A CTO of a global financial services company once asked me for advice. As he moved up through the ranks in the organization, he realized that many of the issues it faced were a result of the way it was budgeting.

He explained it to me, “Every year, we go into a yearly planning cycle. The management of the organization asks all the VPs what they plan to deliver. They have the product managers write business cases, which they choose to fund. Those business cases are based off very little data, and they have some wild estimates on them. They turn all these business cases into a giant roadmap for the year, give them out to each team, and fund the projects. At the end of the year, if they do not deliver what’s on the roadmap, they do not get as much funding the next year.”

“Do you realize what that means, Melissa?” he asked me. “That means that, if a team finds a way to build a product cheaper—​or finds that the product shouldn’t be built at all—​they are building it anyway because they will be penalized if they don’t spend all their money.”

That. Is. Insane. Because these budgets are done on a yearly basis, it also really kills the team’s ability to change course at all throughout the year. The organization is preventing itself from rapidly learning and iterating.

It’s far wiser to look at funding product development like a venture capitalist (VC). ...