Fund the Outcome, Not the Project: A Portfolio Operating Model

The problem with annual project budgets

I have spent most of my career inside the annual budget cycle, and I am increasingly convinced it is the single biggest brake on enterprise transformation. The cycle forces the organisation to decide, in advance, what will deliver value twelve months from now, in a market it cannot see. Every project gets a fixed scope, a fixed pot of money, and a fixed end date. Then reality intervenes, scope drifts, and the governance apparatus spends the rest of the year protecting the original estimate rather than protecting the outcome.

I have measured this. In a global portfolio I oversaw, we found that a majority of initiatives that missed their original value case did so not because they were delivered badly, but because the world they were built for had moved by the time they landed. The delivery was fine. The bet was stale. And the budget model gave us no mechanism to stop funding a stale bet, because the money was already committed against a scope.

This is the core dysfunction: the funding model is designed to fund projects, not value. As long as money attaches to scope rather than to outcome, the portfolio will optimise for spend, not for impact.

Fund the outcome

The alternative, and the model I have built in practice, is Lean Portfolio Management. SAFe's Lean Portfolio Management competency describes the core moves: replace project budgets with capacity allocated to value streams, and let the stream's leadership decide continuously which investments best advance the outcome with that capacity.¹ Prioritisation becomes a rolling decision, not an annual ceremony.

Three things make this work, and I have learned all three the hard way:

• Capacity allocation. Funding is expressed as people and run-rate attached to a value stream, not as a one-off project cheque. This is the change Finance resists most, and it is the change that unlocks everything else. When a value stream has standing capacity, it can reprioritise inside a quarter without asking permission. When it only has project cheques, every reprioritisation is a budget re-approval, and so reprioritisation stops happening.
• Continuous prioritisation. A portfolio backlog is reprioritised every cadence; funding follows the highest-value option, not the loudest sponsor. Kersten's Flow Framework gives the metrics to prioritise on (time-to-value, throughput, efficiency, reliability), so the conversation is about flow, not opinion.² In my portfolios I have run this on a four-week cadence; shorter than that and the overhead dominates, longer and the portfolio reverts to annual thinking.
• Fitness-for-purpose. Investments are judged on whether they moved the outcome metric, not whether they spent the budget on time. This requires the organisation to define outcome metrics before it funds the work, which sounds obvious and is, in my experience, the step most often skipped.

What changes for Finance

The honest objection I hear from Finance is that funding value streams removes their control. It doesn't; it relocates it. Finance still sets the capacity envelope for each value stream; what it gives up is the line-item control of individual projects, which was always an illusion anyway given how quickly scope drifts. The Beyond Budgeting Institute has made this argument for corporate finance for two decades: replace fixed annual targets with relative, rolling goals, and you get better resource allocation, not worse.³

I have seen the shift land well and land badly. It lands well when Finance is brought in as a co-designer of the new model, because the new model is, at root, a finance model. It lands badly when it is imposed on Finance as an "Agile" initiative, which is how it is usually sold, and why it is usually rejected.

What I would do differently next time

If I were starting a portfolio transformation tomorrow, I would sequence it differently than I have in the past. I would start not with teams or ceremonies but with one value stream (a single, standing capacity envelope with a defined outcome metric and a four-week cadence) and prove the model there before scaling it. The temptation is always to restructure the whole portfolio at once, because that is what a transformation deck promises. The practice that works is to make one value stream unambiguously successful and let the rest of the organisation ask to copy it.

I would also insist on a single outcome metric per value stream, defined before any funding is committed. The metric is the contract. Without it, "fund the outcome" collapses back into "fund the activity," because activity is what you can always measure.

Why this is the work

I believe portfolio funding is the lever with the highest mechanical advantage in enterprise transformation. You can reorganise teams, rebrand roles, and introduce cadence (and many organisations do) but if the money still flows through annual project budgets, behaviour will revert to the budget cycle within two quarters. Conversely, change the funding model and the rest of the operating model has to follow, because the money will no longer support the old structures.

If the funding model still pays for projects, the operating model is still a project model, whatever the slide deck says.

That is the line I carry into every portfolio conversation. It is not a popular one with Finance on day one. It is the one that turns out to be true on day three hundred.

¹ SAFe, "Lean Portfolio Management" (Scaled Agile Framework). ² Mik Kersten, Project to Product (IT Revolution, 2018). ³ Beyond Budgeting Institute, "Beyond Budgeting" principles.