Published:Aug 18, 2020

Capitalizing Software Development

There are conflicting views around if and how businesses should capitalize software development. These are business decisions influenced by an organization’s interpretation of tax law and reporting responsibilities. 7pace will not give guidance on either topic.

What we will say is that many of our customers use 7pace Timetracker to help them get accurate and rich data for use in making their own capitalization decisions. Ultimately, this saves a lot of time reporting and assessing, while increasing the percentage of work that is capitalized.

There are two main approaches to tracking and reporting

One thing that was nice about waterfall software development was the defined gates for proceeding from one stage to the next.  This made reporting for capitalizing much easier.  In the Agile world, most of those stages are now happening concurrently, often for multiple assets at a time. 

The two most common approaches we have observed to tracking and reporting capitalization in an Agile organization are milestone or phase.  For milestone, gates are set (sound familiar?) around project kickoff to begin capitalization and product release to end capitalization.  Accounting for Capitalization of Agile Labor Costs is a timeless reference for the milestone approach. 

The phase approach is a little more nuanced.  This approach looks at what the team was doing at any point in time and defines what is capitalizable or not.  For example, an organization may decide to expense Discovery, and capitalize Development, Testing and Documentation.

Of course, some organizations take a hybrid approach and look at activities between milestones.

Big Question: Why should I use Timetracker when my company already uses an enterprise-wide time tracking system?

In a word: accuracy

When you are capitalizing or billing your time, every minute counts.  Timetracker is deeply integrated with Azure DevOps.  We are the only productivity app that is.  By being deeply integrated, this increases accuracy and reduces TCO by making it easier (almost automatic) for developers to record their time while they are working. 

According to Acello, “People who track their time use daily are 66% accurate, while those who track weekly are 47% accurate. Meanwhile, those who prepare their timesheets less than once per week are only 35% accurate.”  Taking that a logical step further, people who track their time use in real-time are more than 66% accurate.

If you do the math, the ROI for Timetracker is compelling.  Simply consider the time to gather all of the data, the granularity of the activities with time associated, and the accuracy of the time tracked. 

Having more accurate, granular data means you remove a lot of guesswork and associated risk in accounting, while capitalizing more of your costs.

Most importantly, just because you want better data doesn’t mean you have to give up your other system or enter time twice (yikes.). 7pace has a robust API that can easily be integrated into most systems, or at least configured to support your specific ETL format.

Want to learn more about software capitalization? Join us for our next webinar, “Software Development Capitalization – Increasing Percentage of Work that is Capitalized & Reporting Tips”.

Have more questions about software development capitalization with 7pace Timetracker? Schedule a demo with a 7pace technical expert.

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09-11-2020 11:53

wow! great insights dave