“speak cfo in 1 easy relatively not too complicated step” what project managers need to know...
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“Speak CFO in 1 Easy Relatively Not too Complicated Step” What project managers need to know about software capitalization
Stacy [email protected]
Stacy TaylorPresident, 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
Ratio Capitalizing
Expensing Capitalizing
Expensing
Net Income Higher Lower Lower Higher
Stockholder equity
Higher Lower Lower Higher
Total Assets Higher Lower Higher Lower
ROA (Return on Assets)
Higher Lower Lower Higher
ROE (Return in Equity)
Higher Lower Lower 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 worseoff. ($20,000 -$55,000)
Capitalized:Gas is gone (Expense)Truck has value into future(depreciating)Earnings are the sameBusiness 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
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
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
Requirement
sDesign Code
Integration
TestMaintenanc
e
Expensed ExpensedCapitalized
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 wasnot tracked adequately, the
business misses out on opportunity to capitalize
What about Agile?
Backlog
Feature Requests
3 Approaches
•Capitalization by % of Agile Release Train Costs
•Capitalization by Story Points•Capitalization by Task Hours
% of ART Costs
Capacity Allocation
MaintenanceArchitectureNew Business FeaturesManagement
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
Task Description
Resource Estimated Actual
29.6 Final icon design
David 2 2
29.7 Hyperlink to new article
Karen 3 1
29.9 Test link Jonas 2 5
Total 7 8
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
