Shifting from Project Budgets to Capacity Funding: Insights from Melissa Perri

In a recent LinkedIn post, Melissa Perri discusses a fundamental shift in how leading companies approach financial planning for product development, moving from traditional project-based budgeting to a capacity-driven model. Perri highlights the transformative work done at Chase under Jameson Troutman, illustrating how this change impacts product team autonomy and accountability.

Perri explains the core difference between the two models. The conventional approach involves identifying a specific item to build, budgeting for it, and then delivering it. While seemingly straightforward, this method disconnects funding from the iterative and discovery-driven nature of actual product development. As Perri notes:

“The old model: identify something you want to build, budget for it, deliver it. Clean on paper. Disconnected from how product development actually works.”

The Capacity Funding Advantage

The alternative model, as implemented at Chase, involves distributing financial capacity across product teams. These teams then have the autonomy to prioritize what they deliver within that allocated capacity, guided by discovery, customer feedback, and their own judgment. Perri argues that this approach avoids a critical flaw inherent in project-based budgeting.

Funding Answers Before Understanding Problems

The primary issue with tying budgets to specific deliverables, according to Perri, is that it forces a prioritization decision before any meaningful discovery has taken place. This means companies are essentially funding solutions before they have fully understood the problems they aim to solve. Perri elaborates on this point:

“This matters because project-based budgeting creates a hidden problem. The moment you tie a budget to a specific deliverable, you’ve already made a prioritization decision before your team has done any discovery. You’ve funded an answer before you’ve understood the problem.”

Maintaining Accountability in a Capacity Model

A common concern with capacity-based funding is how to maintain oversight and accountability. Perri addresses this by referencing Troutman’s experience at Chase, where accountability is refocused on outcomes rather than outputs. Teams are held responsible for the results they achieve, the business value they generate, and how effectively they address customer needs. As Perri points out:

“The capacity model doesn’t remove accountability. It just keeps the accountability pointed at outcomes rather than outputs.”

This shift encourages teams to continuously learn and adapt, ensuring that the work they undertake remains aligned with strategic goals and customer value. The capacity model fosters a more agile and responsive product development environment.

The Trade-offs of Cadence

Perri also acknowledges the inherent trade-offs in adopting a capacity-based model. While it allows for the rebalancing of resources across the portfolio as priorities evolve, this cannot be done too frequently without negative consequences. Perri explains:

“You can rebalance capacity across the portfolio when priorities shift, but you can’t do it constantly. Swinging budget around every quarter impacts speed, reduces expertise, and pulls decision-making away from the people closest to the customer.”

Finding the right cadence for adjustments is crucial. It provides the necessary stability for teams to operate effectively and build expertise, while remaining flexible enough to adapt to changing market conditions and business needs. This balanced approach, Perri suggests, prevents teams from being locked into suboptimal decisions made with incomplete information.

The insights shared by Melissa Perri, originally featured in Episode 264 of the Product Thinking with Melissa Perri Podcast, offer a valuable perspective for organizations seeking to optimize their product development funding and enhance their focus on delivering customer value and business outcomes.