Avoiding the Pitfalls of Capitalizing Software in an Agile World – from Agile and Beyond

With the increased speed that CIOs and CTOs are moving their teams into agile environments, their financial brethren are running to catch up. Having been grounded in the days of waterfall methodologies, the financial side of the house is dealing with great uncertainty on how to account for software development costs. Questions include: Are all development costs now expensed because of the continual planning, developing and pivoting of software that occurs within agile? If development costs can be capitalized, what is the appropriate way to track these costs – through hours or something new altogether like story points?

We will explore how the historic accounting guidance that was developed specifically through the lens of waterfall methodologies remains applicable within agile methodologies. We look at the alternative ways to amortize these capitalized development costs and evaluate the pros and cons of doing so. In addition to the financial reporting aspects of this presentation, we will also explore the benefits gained by moving from project-based funding to overall product –based funding and what key requirements must be in place to have that successful.

The goal of this presentation is to increase awareness among the audience that while making the decision to become agile is a business decision, this decision cannot be done in isolation. The business will eventually need the approval by their finance colleagues and if these financially grounded colleagues are not educated on the financial and accounting implications of moving to agile methodologies they may block such a move based on their misunderstandings alone. Getting everyone on the same page is a key success factor when moving to agile.