There is one fundamental difference between setting a typical budget and setting a budget for your digital transformation project—the fact that a digital transformation budget is a moving target.

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Your expectations at the start of a new digital transformation endeavor won’t necessarily match your expectations or results when the project is complete. This flexibility is essential to the success of a widespread digital transformation; but it also takes executives out of their budgeting comfort zone.

There’s a lot that goes into selling executives on digital transformation, but the most significant factor is often the ability to clearly define the “I” in ROI. The first step in proving digital transformation ROI is the initial budget you present—but you’ll want to redefine your budgeting process to better suit digital transformation.

The Waterfall vs. Agile Discussion

Executives take solace in the clear definitions of a traditional budgeting process. The waterfall approach gives decision makers a clear picture of how much money is being spent and what it is being spent on throughout a new project. While this is comforting for executives, it’s not necessarily effective for digital transformation.

Think about the timeline of a project with a waterfall budget. With so much initial planning, a consulting firm taking this approach might implement a six to twelve month project roadmap. This timeframe is acceptable for safe, internal projects; but when stepping into a potentially risky digital transformation, twelve months seems like an overwhelming commitment.

As individual departments in your company adapt to agile processes, your budgeting process should as well. Setting budget piecemeal, for a group of two to three week sprints as opposed to an overall six to twelve month project gives you a chance to quickly show digital transformation ROI with iterative wins that make investments easier to swallow.

Money Is Important, but Perspective Is Everything

When you can fund a small digital transformation project for just a few months in a proof of concept or prototype phase, manageable investments can help test theories before you bite off more than you can chew. However, a more agile approach to budgeting is about more than just taking the project in small sprints—it’s also about executive perspectives on their investment.

Looking at a six month roadmap with a total investment of $1 million or more can be overwhelming for executives. Even if your executives are on board with digital transformation, this kind of investment is just too risky for many to bear. Instead of presenting an overwhelming budget, propose a discovery phase in which you only invest, for example, $100,000.

When you invest a fraction of the typical digital transformation budget, you can take the lessons learned from potential failure and pivot to a new idea. Executives can think of the $100,000 investment as a sunk cost that saved them from investing (and wasting) the remaining $900,000 of the total budget.

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This perspective harkens back to one of our favorite mottos: Try fast, iterate fast, fail quickly and stop.

The bottom line for budgeting perspective is that digital transformation is an optionality bet. You look at the probabilistic model as you balance investing enough to know you can win with the need to ensure you’re not investing too much that losing will be too painful. As long as you keep the bigger picture budget in mind when planning your iterative budget, you can support a more agile digital transformation budget.

For Larger Companies, A Digital Innovation Center Might Be the Best Option

The ideal goal for digital transformation is to get to a point where you have perpetual, self-sustaining investment. You don’t want to go back to your executives every time you want to initiate a new project. For large companies, establishing a digital innovation center can help create this sustained investment. 

A digital innovation center (such as Texas A&M’s Digital Center of Excellence) allows people to think outside of the hierarchy of normal business operations. They might not have large budgets, but they should have enough to conduct small projects that can be injected back into the business. Highly experimental companies such as Pizza Hut use this approach to support continuous attempts to find success with digital transformation.

The key to digital innovation center success is to create a stipulation that a percentage (maybe ten percent) of revenue generated from digital transformation projects pushed into the business is rolled back into supporting new projects. This is how you sustain digital transformation investments and manage budgeting risks.

Budgeting for digital innovation projects is just one step in the grand transformation scheme. In our latest free white paper, The Pillars of a Successful Digital Transformation Strategy , we dive into the seven essential aspects of a digital transformation process. Download the white paper now and learn how to frame your company’s transformation.

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