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.
I'll take double headcount, please. Daniel's introduction:
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. I claim Scrum teams create production cost data that are more verifiable, better documented, and more closely aligned with known customer value than most waterfall implementations. Better reporting can mean significant tax savings and greater investor interest. Agile companies should change their financial reporting practices to exploit Scrum’s advantages. It might not be easy, but I did it.
Scrum’s production experiment framework aligns perfectly with the principles of financial reporting.
When I restructured software capitalization according to the principles here during an all-company Scrum transition at a 900-person software company, we delighted auditors, gave more insight to upper management and raised more internal money to hire developers. We gained millions in tax savings, by using Scrum Product Backlog Items to more accurately document and capitalize our software work.
I hope to arm you with perspectives and resources to make the accounting argument for agile capitalization, potentially reducing your company’s tax burden, increasing available funds for engineers, and making your auditors happy
Agile is real money.