Software engineers and their teams are more automated and efficient than ever before. At the same time, many organizations still collect, analyze, and process payment data manually. This leads to a situation where finance operations become a bottleneck to engineering performance.
If engineering leaders have to wait for insight into the cost capitalization of software initiatives, the entire team slows down as well. It’s easy to understand why engineers dread cost capitalization initiatives and other changes to the way they interact with finance teams.
As a result, tracking software capitalization remains a challenge for many engineering teams:
But deploying modern cost capitalization processes can unlock significant value for engineering teams. This is especially true for growing organizations who need to make the most of limited budgets.
Manually collecting and analyzing performance data comes with a significant opportunity cost. It takes time away from core development tasks and makes resource optimization more difficult to achieve. This is why engineering leaders are increasingly pursuing automated cost capitalization initiatives.
So, what exactly is cost capitalization?
Cost capitalization is the process of recognizing and accounting for expenses over a period of time through depreciation or amortization. Depreciation is for tangible assets like hardware equipment or real estate, while amortization is for intangible assets like intellectual property and employee labor-hours.
This allows the business to account for the capitalized cost as a fixed asset. That means it no longer has to recognize the entire upfront cost of that asset all at once – it can spread the cost over multiple years, smoothing out its expenses and freeing up valuable capital for other investments.
The problem many engineering teams face is that software development can be very difficult to capitalize. When capitalizing software, project prioritization isn’t always accurate. Development time frames may change. Fitting development processes into GAAP accounting isn’t always simple.
Forward-looking engineering leaders have a clear motivation to synchronize engineering resources with their financial goals. Organizations are increasingly moving from manually mapping team efforts to automated solutions for analyzing and reporting engineering performance data.
This allows the organization to spend less time, money, and effort on traditional cost-reporting methods and dedicate more resources to building innovative software products. It gives leaders the ability to get more out of their limited budgets and achieve challenging goals more easily.
Automated solutions pull data directly from Integrated Development Environments (IDEs), VCSs, and code repositories. This grants engineering leaders visibility into real-time operating costs, making accurate, automated cost capitalization possible.
Importantly, this kind of approach isn’t limited to large enterprises with unlimited budgets. Startups, small businesses, and growing organizations can all leverage automated insights towards building a smoother, more resilient balance sheet.
When engineers spend time manually tracking their production, it reduces the amount of time they actually spend on value-generating tasks. Even more importantly, it distracts them from their work and becomes an obstacle to creativity and innovation that is integral to great development.
Pulling engineers away from development isn’t going to improve performance. Traditional cost reporting methods come from a time when there simply was no other option. Now, engineering leadership has the ability to implement automated reporting and create efficiencies that simply didn’t exist before.
This allows engineering leaders to implement software capitalization without paying the hidden opportunity costs that often come with similar efforts. For example, an organization may decide that an Agile Data-Driven development methodology is now feasible since it can capitalize development costs over longer periods of time. It can also invest in intangible assets more effectively, without letting money get locked into development-related processes.
Many software development tasks and business operations can be capitalized automatically. The GAAP account method provides for several categories of cost planning that can be capitalized over multiple years:
Achieving this kind of resource optimization isn’t feasible without robust automated reporting and software capitalization tools. This also enables the organization to adopt much more flexible working methodologies, like the Agile approach. Without the help of a comprehensive automated platform for cost capitalization, unlocking these benefits is a complex and time-consuming draw on productivity.
The ability to collect, analyze, and report software engineering costs automatically provides organizations with the ability to optimize costs and free up engineering talent for high-impact value-generating tasks. It represents a complete departure from the traditional, manually-intensive way of reporting costs.
Organizations that adopt this streamlined new methodology enjoy better cost efficiencies and deeper analytics capabilities than traditional enterprises. Optimize resource allocation and get more out of your budget.
Waydev can help you measure and analyze the allocation of engineering resources, making it easier to achieve robust cost capitalization in software development. Use our platform to gain visibility and control over engineering performance while promoting valuable efficiencies between developers and financial teams.
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