“Speak CFO in 1 Easy Relatively Not too Complicated Step” What project managers need to know about software capitalization Stacy Taylor President

Stacy Taylor President, Red Mountain Services Software Developer turned Project Manager turned Executive Loves project management and cupcakes

What a Project Manager Says I’m going to lead a team of highly skilled subject matter experts to develop a new software system that should reduce our operating costs in 3 to 5 years

What CFOs Hear I’m going to spend lots of money on something with somewhat questionable ROI and report statuses to you in % complete resulting in completely unusable data for financials and forecasting

How CFOs think What does my company look like to shareholders? What are the management goals of my company and how can I support that through my financial accounting?

Capitalization vs. Expense RatioCapitalizingExpensingCapitalizingExpensing Net IncomeHigherLower Higher Stockholder equity HigherLower Higher Total AssetsHigherLowerHigherLower ROA (Return on Assets) HigherLower Higher ROE (Return in Equity) HigherLower Higher Initially Later Years Capitalizing costs are an important part of how the company is perceived now and in the future

Cupcake Capitalism! Finally, our 100,000 calorie Cupcakes are ready to sell. How do I get them to customers?

Business Problem Solved! Accounting Problem Begins! $50,000 Delivery Truck $5,000 in Gas $20,000 in Earnings Expensed: Business is $35,000 worse off. ($20,000 -$55,000) Capitalized: Gas is gone (Expense) Truck has value into future (depreciating) Earnings are the same Business is $5,000 better ($20,000-$5,000-$10,000)

Cupcake Ordering Application $500,000 Development Cost $100,000 in Hardware Costs $ 50,000 Software licenses $ 20,000 in Travel Expensed: ??? Capitalized: ??? If time and effort was not tracked adequately, the business misses out on opportunity to capitalize If time and effort was not tracked adequately, the business misses out on opportunity to capitalize

What a Project Manager Needs Understanding of capitalization policy Is it incorporated into methodology or is project manager responsible for delivering data needed to support it?

Evaluation If project ended here, no asset Software Development End result is “significant” asset Post Production Maintenance not “significant” Phase Analysis Capitalizing Possible

Capitalization Policies are Invented and Can Change Usually a dollar amount threshold to make it worth the time and effort Example: ▫$200,000 or more upgrade or new development ▫Development and Testing but not Design hours are capitalized ▫All travel is expensed ▫All hardware and software over $10,000 is capitalized

Cupcake Ordering Application $500,000 Development Cost $100,000 in Hardware Costs $ 50,000 Software licenses $ 20,000 in Travel Expensed: $20,000 Travel ??? Development Capitalized: $100,000 hardware $ 50,000 software ??? Development The Project Manager needs to understand how to track effort and costs

Waterfall RequirementsDesignCodeIntegrationTestMaintenance Expensed Capitalized

Cupcake Ordering Application $500,000 Development Cost $100,000 in Hardware Costs $ 50,000 Software licenses $ 20,000 in Travel Expensed: $20,000 Travel $150,000 Design and Training Capitalized: $100,000 hardware $ 50,000 software $ 350,000 Code and Test If time and effort was not tracked adequately, the business misses out on opportunity to capitalize If time and effort was not tracked adequately, the business misses out on opportunity to capitalize

What about Agile? Backlog Feature Requests Asset Features

3 Approaches Capitalization by % of Agile Release Train Costs Capitalization by Story Points Capitalization by Task Hours

% of ART Costs

Story Points Determine Capitalizable Stories (must have business case and implement features) Use burn down charts and story points Accounting calculates an average cost per story point

Capitalization by Task Hours TaskDescriptionResourceEstimatedActual 29.6Final icon design David Hyperlink to new article Karen Test linkJonas25 Total78 Story 29: Add cupcake icon with hyperlink to pros of frosting for health

Cupcake Ordering Application $500,000 Development Cost $100,000 in Hardware Costs $ 50,000 Software licenses $ 20,000 in Travel Expensed: $20,000 Travel $150,000 Design and Training Capitalized: $100,000 hardware $ 50,000 software $ 350,000 Code and Test Good reporting on Agile efforts improves financial insight

Ready for Anything

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