One of the primary goals of annual planning is to translate aspirational strategic plans into realistic execution plans. Sadly, rather than delivering plans we can all feel good about and believe in, too often it leaves us depressed about the work ahead of us. This article shares five practical principles to remove the emotions associated with annual planning.
The end of the year isn’t that far away. Getting into a holiday spirit may be on some minds, but annual planning and budgeting is more likely to be on the minds of business and development leaders.
Annual planning is the “just make it happen” process: Business leaders return from their executive retreat with a list of strategic initiatives that will define the work next year, and the implicit (or explicit!) message is, “Well, IT/engineering folks, make it happen! You’re smart people.” This is a wishful world of make-believe when we all know there is always too much to do and not enough capacity for it all.
One of the primary goals of annual planning is to translate aspirational strategic plans into realistic execution plans. Portfolio capacity planning—the process of identifying what we can realistically deliver and how we will allocate our scarce development teams to deliver on the strategic plans—is where the rubber (business demand) meets the road (software capacity).
Sadly, rather than delivering plans we can all feel good about and believe in, too often annual planning leaves us deflated and depressed about the work ahead of us. We all know the plans are not realistic; they may not even be the right things to work on. And one thing is for certain: They will change. If you are involved in your organization’s annual planning, there is hope to replace this enthusiasm-sapping, demoralizing activity with a more energizing and empowering one.
Lean mindsets may ask, Why bother creating an annual plan in a world where so much changes so fast? Should we stop doing what feels like a wasteful exercise?
Many business processes still happen on an annual basis (e.g., budgeting, hiring projections, etc.), so annual timeframes will make sense for a long time. Also, if you work in a competitive environment, your sales force is better equipped with a view into where you are taking your products, even if that view changes. So, yes, annual planning is here to stay.
Then the next question is: How can we make the process more valuable and less time-consuming and frustrating?
These past months, my team at Rally Software has been working with customers to investigate ways to make annual planning less painful and more beneficial. In this article, I share five practical principles you can apply to remove the emotions associated with annual planning.
First Principle: Teams over Individuals
The first principle calls for planning your resource allocation using teams instead of individuals, roles, and skill sets. A “team” characterizes a group of people sharing a common goal—it could be a cross-functional team, an agile team, a waterfall team, or a team of specialized resources too small for its members to be dedicated to cross-functional teams.
This principle is grounded in research quantifiably proving that stable teams increase productivity. It also reflects the lean principle of “Follow the work, not the workers.” Moving to team-based capacity planning has the added advantage of simplifying (and therefore speeding up) the capacity planning exercise by a factor of ten: Accounting for teams rather than individuals means managing a tenth of the information.
Second Principle: “Roughly Right” over “Precisely Wrong”
We tend to overplan and overthink. We live in a fantasy that equates precise plans with accurate plans. Traditional capacity planning techniques force us to detail work packages to the nth degree until everything feels known and capacity is 100 percent utilized through work assignments—despite unknowns and inevitable surprises. The result: very precise estimates that are precisely wrong.
Aiming for “roughly right” is about finding a balance of accuracy and adaptability. It is accounting for the fact that realistic planning horizons should match the number of unknowns that exist a few weeks from now, a few months from now, and a year from now. It is about accepting that the only constant is change and getting comfortable with uncertainty.
Third Principle: Continuous Planning Cadence
In today’s fast-moving world, it is impossible to do capacity planning once a year and expect the outcome to still be valid after three months. To keep the exercise valuable, you have to inspect and adapt to the pace of change.
A continuous planning cadence is about planning to replan and deferring decisions until you have the information to make better decisions. You still need to look a year out; you just need to frequently look a year out! Then your annual plans can remain relevant. The key is to create different cadences with a clear purpose for each: annual for budgeting and forecasting, and quarterly for detailed prioritization.
As you embark on a continuous planning cadence, the ability to manage uncertainty becomes much more tolerable because you know you will have the opportunity to inspect and adapt at more frequent intervals.
Fourth Principle: Tolerate Incomplete Information
This principle is about acknowledging the fact that you likely will not have all the information you need to plan, yet you still have to plan. The cost of delay can be so high that you have no choice but to get comfortable with operating on good-enough data. It’s about focusing on the information that will likely harm you later if you skip over it.
For example, detailing work that won’t be scheduled for six months is a waste. Instead, delay detailing work to near-term timeframes, when information is much more certain. Applied to an annual cadence, focus on planning at an initiative level, maybe with some details to avoid misunderstanding from the get-go. With “roughly right” estimates, you will set yourself up for more accurate near-term plans.
Similarly, rather than inventorying individual skill sets and roles, only account for scarce capacity areas, and only where that scarcity is likely to be the long pole. This principle becomes very effective if you are building cross-functional teams that can do most of the work with a bit of help from specialized shared resources.
Fifth Principle: Balance Demand and Supply
This principle is about matching your mostly fixed development capacity (supply) to meet an ever-growing and changing business demand. It is an intuitive principle but requires a high degree of discipline.
Most software organizations don’t have enough software development capacity (supply) to respond to business demand. Yet they keep trying to meet all demand with their limited supply, creating bottlenecks, frustrations, high context-switching costs, and unrealistic expectations of delivery. It is very near impossible to increase software development capacity in the near to mid-term. If you are lucky enough to have the budget to hire or outsource and you have a brand that attracts talent, your new workers are unlikely to contribute to value delivery until they ramp up on your technology stack, which can take months. In other words, your supply is highly inelastic in the short to medium term. Yet we all know demand can change very suddenly with competitive threats, new regulations, mergers and acquisitions activities, and other business opportunities.
Balancing elastic demand with inelastic supply is a disciplined approach to handling the surplus of demand in an inelastic supply environment.
The key lies in ruthless prioritization. First, understand where your organization generates value to your customers (its value streams), then (loudly!) declare business priorities for each value stream. Then, and only then, match your fixed supply capacity to meet these business priorities. Supply gaps in your short to mid-term supply can feed into hiring plans to increase supply capacity in the longer term.
This principle requires the discipline to first prioritize demand and focus on what you must do to align to business priorities. When discipline is lacking, we see organizations drifting into what we could do with our short to mid-term development capacity, resulting in low-value plans.
A Better Annual Planning Experience
When applied together, the five principles above result in a more successful and dramatically less stressful annual planning process. Just like an agile mindset applied to software development has helped speed value delivery, an agile mindset applied to portfolio capacity planning can help create a more responsive organization—one that is comfortable with uncertainty and responsive to unexpected external and internal events.
