“Today every company is a technology company, no matter what product or service it provides.”
And to rapidly produce competitive products and services that customers love, your technology company is likely using Agile and scaling your Agile teams for faster product or software delivery. While it’s clear to many technology executives and development leaders that Agile is a major driver of future business success, historically, finance leaders aren’t as easily convinced. Why? Generally, Agile development has uncertain accounting impacts and unfamiliar capitalization rules. Often finance believes they will be forced to expense all Agile software development costs. How many of you have hit a roadblock scaling Agile when trying to get the right headcount or dollars from finance to fund your teams?
The inability for finance to evolve financial reporting and governance practices constrains the ability to scale Agile by forcing development efforts into outdated capitalization methodologies that misinterpret Agile costs. Without an approach for how Agile work is costed and capitalized, growing Agile organizations will continue to face an uphill battle when securing budget and people for their Agile delivery teams. No one wants to learn their answer for increased value delivery, faster time to market, and better customer satisfaction is a pipe dream because of how finance views Agile development costs. But when faced with ongoing financial governance headaches around headcount, budgeting, staffing, and funding, many leaders, like you, might end up questioning whether Agile is worth the hassle, despite the successes you’ve had to date. In reality, the customer value delivered through Agile development should outweigh finance’s desire to “keep things as they’ve always been” – and shouldn’t inhibit your organization from scaling the best methods for delivering customer value. It’s time for Agile leaders and finance teams to discuss a joint solution for how to fund, budget, and manage the costs associated with Agile software development work or face the consequences of stalled Agile scaling efforts.
Unlike waterfall or milestone driven work, Agile software development doesn’t follow linear development processes or gates. Financial planners and accountants are often unsure of how to measure Agile costs and appropriately attribute them to the correct capital expense (CapEx) or operational expense (OpEx) categories, leading many to expense all development efforts up front. Finance does this to keep financial policies compliant with auditors. If the Agile work is all expensed, then there’s no question regarding how or what to capitalize. While the certainty of expensing Agile costs may be more straight-forward to deal with, it can be detrimental to the business, as it can overstate costs and falsely cause Agile to appear expensive to the company and its investors. And in the world of costly investments, most companies will opt to defund and reduce headcount for initiatives that are “too expensive.”
Sound familiar? Has this happened to your Agile scaling initiative?
As technology organizations shift to accommodate market pivots and competitive threats, Agile practices often scale across software development and IT to keep pace. Costing and capitalizing their increased Agile efforts accurately becomes paramount to successful fiscal planning and the overall Agile transformation. Knowing what to capitalize and when versus what to expense impacts an organization’s tax liabilities and profitability. Therefore, finance and Agile leaders must come together to discuss how Agile is costed and capitalized. If your organization wants to remain relevant to your existing customer base (or grab market share from less nimble organizations), understanding and driving profitability is critical.
Sounds straightforward, right?
For many Agile leaders, financial topics are not typically in their wheelhouse. A common challenge for Agile leaders trying to accelerate Agile at scale is giving finance the data it needs for calculating costs. In a nutshell, Finance needs to understand all Agile costs and then capitalize Agile labor appropriately. To do this, they need visibility and transparency between what the Agile teams are creating and an understanding of the effort (and hence cost) to do so. This is a critical step in capitalization of these costs. Traditionally, this “visibility” is delivered to Finance in a timesheet format. Time tracking is typically a manual process managed by the individuals doing the work (i.e. your software developers and engineers), and the time spent on development efforts is captured in a time tracking system (time sheets).
Especially for the Agile team, time reporting is seen as a source of incremental overhead and waste, something that doesn’t produce end user or customer value (read: not at all Agile). Ideally, finance wants developers to track their time every day against the stories they’re working on to create the most accurate representation of their time as possible. But, let’s be honest; few software developers and engineers are doing this daily, relegating this task for 4 p.m. on a Friday, when Finance sends the email pleading with them to do so. And even in a perfect developer time-tracking scenario, most organizations would love to recapture and trade administrative time spent collating data for more value creation, productivity time. And what’s worse, due to the manual and human nature of the effort, time tracking is only as accurate as the timekeeper. It is estimated in a whitepaper from AffinityLive, a professional services management software company, that “people who track their time weekly are 47% accurate. Meanwhile, those who prepare their timesheets less than once per week are only 35% accurate.”
So, how do we make both finance and Agile leaders happy?
What if you could cost Agile without disrupting how the Agile teams deliver or how the finance team interprets the costs for capitalization? Cool, huh?
Automating the capture of Agile costs helps remove the overhead of manual time tracking and provides finance with an auditable way to calculate and capitalize Agile software development costs. By utilizing a system that automatically tracks effort spent on a story, feature, and corresponding epic, organizations gain a realistic idea of the value delivery of their Agile teams. You need a solution that takes in the work of disparate Agile teams, apportions their time accordingly, and then rolls-up the data into a comprehensive solution. With this information, Agile and Finance leaders can better understand the true impact their Agile teams have to the bottom line and how to identify Agile software development costs to ensure proper CapEx categorization. This detail ensures the Agile teams get the right level of funding and budgeting support for future endeavors. And, it ensures the organization’s Agile efforts do not appear as expenses that negatively impacts profitability.
The bottom-line: Who doesn’t want an easier and unobtrusive way to deliver important Agile costing information to Finance, while keeping their developers happy and advancing their Agile transformation? Seems like a win, win to me.
To learn more about our approach to capitalizing Agile development costs, download The Challenges of Agile Software Development Costing and Capitalization eBook or visit us at planview.com/lean-agile-delivery
Content provided by SD Times and Planview.