November 26, 2024
Editor’s Note: This article first appeared in The Current, Jellyfish’s LinkedIn newsletter. You can subscribe for monthly updates and articles like this one here.
Budget planning season can feel like a daunting task for engineering leaders. There are competing priorities, complex projects, and financial constraints to balance. But with the right approach, the right data and strategic finance partner, engineering leaders can transform budget planning from a haphazard process into a strategic growth initiative.
Having worked with engineering teams across multiple companies and now as CFO at Jellyfish, I’ve seen just how powerful leveraging data effectively can be to help engineering leaders not only navigate budget planning but also advocate for the resources they need.
Here’s how engineering leaders can utilize data to simplify and optimize their budget planning efforts.
1. Make Budgeting a Year-Round Conversation
Many engineering teams feel unprepared when budget season arrives. As one participant in our recent roundtable discussion noted, “It always seems like it comes out of left field. We never expect it because we’re not thinking about it from an engineering perspective, then all of a sudden we have to throw our budget together in a week.”
To avoid this scramble, budgeting should be a continuous conversation. Start by engaging with your finance team throughout the year. Don’t wait for budget season to roll around – stay aligned with company goals and keep an eye on evolving resource needs. Regularly revisiting financial models and adjusting based on real-time data will ensure that you’re not caught off guard.
Budgeting is a year-long activity. You have to start early. Finance often spends a lot of time working on models for sales, marketing, and other go-to-market teams, and engineering sometimes comes last in that queue. To avoid this, engineering leaders should be proactive and build their own models early in the process. Be sure to seek out and build a relationship with your finance counterpart to keep the lines of communication open.
2. Tie Budget Requests Directly to Business Impact
When making budget requests – whether it’s for additional headcount, new software, or infrastructure – it’s critical to frame these items in terms of business impact. Engineers often focus on the technical challenges or the work required to get things done, but to unlock resources, you need to articulate how your requests will move the needle for the company.
During our roundtable, one leader pointed out the disconnect between engineering work and business results: “I can tell you how hard I think it’ll be to build something, maybe even how much it will cost, but connecting that through to the business impact chain is difficult.”
To bridge this gap, collaborate closely with your finance team. Explain how the additional resources will lead to measurable outcomes, whether that’s shortening sales cycles, improving retention, or opening new revenue streams. The best way to have conversations on additional spend and get more resourcing is to tie your request back to business impact. Don’t just focus on deadlines – connect your work to key financial metrics or other priorities you know your company cares about.
3. Collaborate with Finance Early and Often
One key takeaway from our conversation was that finance hates surprises. The worst thing is asking for resources without having a partnership or understanding of what those resources will bring to the business. It is finance’s job is to forecast and plan for the future. So, when there’s a big shift or a sudden ask, it can create friction.
To avoid this, it’s important to build a collaborative relationship with your finance team from the start. Work with them to build staffing models, AWS spend models, and other key financial projections. Be proactive about sharing your future needs, even before they fully materialize.
As another participant mentioned, “We often struggle with the differentiation between COGS and OpEx, and how to align those things, which impacts our budgets every year.” By involving finance early in these decisions, you can avoid confusion and ensure that you’re categorizing costs appropriately. This will also make your budget more credible and easier to defend when it’s time to make the inevitable trade-offs.
4. Embrace Flexibility in Your Planning
One of the biggest hurdles for engineering leaders is the unpredictability of software development. Unlike sales or marketing, where metrics and outcomes are more easily modeled, software projects can experience delays, scope changes, and other unforeseen challenges. As one participant explained, “The hardest part is closing the project. It’s easy to hit initial milestones, but things can creep in at the end, and we can’t always predict when the project will truly be finished.”
To navigate this uncertainty, I recommend building flexibility into your budget from the outset. Use historical data to set reasonable estimates for ramp times and project timelines, but recognize that adjustments will likely be necessary. A guess from engineering is better than a guess from finance, so don’t be afraid to share your estimates even if they’re imperfect. It’s better to have a working model that can be adjusted than to be completely caught off guard.
It’s also important to create space for regular check-ins and iterations on the budget. Treat your budget like a living document that can adapt as your team’s priorities and workload shift throughout the year. Budgeting is not just a one-time event. You need to review and adjust continuously to reflect what’s actually happening on the ground.
5. Understand the Trade-offs Between Build vs. Buy
Another key aspect of budget planning for engineering leaders is deciding when to build solutions in-house versus buying external tools or services. As engineers, it’s often tempting to want to build everything from scratch, but from a financial perspective, that may not always be the best use of resources.
As one engineering leader pointed out, “We don’t think about multiple approaches to how we want to apply the budget. Should we be building or buying? Staffing up or using staff augmentation? It’s hard to put scenarios together to answer those questions.”
To make informed decisions, leverage data to evaluate the cost of building versus buying. Understand the long-term impacts on both COGS and OpEx and work with finance to determine which approach aligns best with your budget constraints and business goals.
Sometimes, the hardest part of budget season is getting engineers to think beyond headcount. It’s not always about hiring more people; it’s about making strategic decisions based on what will drive the most value for the business.
6. Develop a Strong Engineering-Finance Partnership
At Jellyfish, we have a collaborative approach to budget planning, where product, engineering, and finance work closely together to ensure alignment across teams. I never meet with product without engineering or vice versa when it comes to budget planning. It’s critical that all of these functions are in sync so that we can make the best possible decisions for the business together.
Creating this partnership allows for more informed decision-making and ensures that engineering leaders have the support they need. It also helps prevent situations where engineering feels left out of the budgeting process or where finance is forced to make decisions without a full understanding of the technical implications.
As one of the participants in our discussion said, “At our company, engineering and product budgets are always done together. It’s a highly collaborative process, and that’s made all the difference in ensuring we get the resources we need.”
An Opportunity to Drive Strategic Growth
Budget planning doesn’t have to be a stressful or chaotic process for engineering leaders. By using data to inform decisions, building strong partnerships with finance, and tying resource requests to business outcomes, you can turn budget season into an opportunity to drive strategic growth for your team and your company.
