Why Should Agilists Care About Capitalization?

Agile Cap fig1

In many companies, agile software development is misunderstood and misreported, causing taxation increases, higher volatility in Profit and Loss (P&L) statements and manual tracking of programmer hours. One large company’s confused finance department expenses all agile software development and capitalizes waterfall development; projects in this company that go agile see their headcounts cut by 50%. This discourages projects from going agile.

Scrum’s production experiment framework can align well with the principles of financial reporting. In this article, the author explains the basics of capitalization and expensing, and offers a financial framework for capitalizing agile projects that can be understood by both accountants and agile teams.

Software development is an investment in the long-term future. Some software development projects are not long-term investments; it depends on whether the software remains an asset. Agilists should learn proper capitalization and teach their colleagues. Companies can usually save on taxes, hire more developers and create value more rapidly when they capitalize software development correctly.

Companies can gain tax advantages by capitalizing software development; by deferring costs they typically offset more taxable revenue and gain more interest income.

Corporate agilists need to help finance departments capitalize agile software development properly. ScrumMasters and agile department heads who understand capitalization and depreciation can generate millions in tax savings. Responsible agilists must work directly with their own corporate finance departments and auditors to craft acceptable capitalization processes.

Because recommended accounting practices ignore Agile, the article discusses how to classify costs as capital or operational expenses and gives guidance on how to make the transition from waterfall to Agile in a way that pleases management, accountants and auditors.

Making the case for agile capitalization will reduce your company’s tax burden, increase available funds for engineers, and make your auditors happy.

You can read the article by clicking on this link: Agile Capitalization

By Dan Greening

Dan Greening is a serial entrepreneur working on his fourth startup, where he leads implementation of two agile practices, Lean Startup and Scrum. Between the third and fourth startup, he was the lead agile coach for Citrix Online, Skype, Overstock, and other companies. He holds a Ph.D. in Computer Science from UCLA. He is a Certified Enterprise Coach with the Scrum Alliance, and a Scrum@Scale Trainer. He has published innovative work on agile management, parallel processing, and chaotic systems.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.