1. “Speak CFO in 1 Easy Relatively Not too Complicated Step” What project managers need to know about software capitalization Stacy Taylor President stacy@red-mt.com

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

3. 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

4. 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

5. 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?

6. 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

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

8. 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)

9. 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

10. 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?

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

12. 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

13. 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

14. Waterfall RequirementsDesignCodeIntegrationTestMaintenance Expensed Capitalized

15. 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

16. What about Agile? Backlog Feature Requests Asset Features

17. 3 Approaches Capitalization by % of Agile Release Train Costs Capitalization by Story Points Capitalization by Task Hours

18. % of ART Costs

19. 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

20. Capitalization by Task Hours TaskDescriptionResourceEstimatedActual 29.6Final icon design David22 29.7Hyperlink to new article Karen31 29.9Test linkJonas25 Total78 Story 29: Add cupcake icon with hyperlink to pros of frosting for health

21. 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

22. Ready for Anything

23. Stacy Taylor stacy@red- mt.com More Information