Managing IT as a Business

The Pennell Group believes that for IT to add measured value to a business and drive innovation while enabling change, IT must be managed as a business.

Here is a collection of tools and resources which focus on the financial aspects of IT.

FASB 86 and Software Capitalization

FASB-86 describes the guidelines for how software R&D, purchase, development and implementation should be addressed from an expense and capitalization perspective. It’s complex to evaluate and apply to any given project or lifecycle methodology and we recommend consulting with an accounting specialist for anything but the most trivial situations. The whole Summary of Statement is included here so you can get an understanding on the philosophy and approach.

Financial Accounting Standards Board - Summary of Statement No. 86

Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed (Issued 8/85)

Summary

This Statement specifies the accounting for the costs of computer software to be sold, leased, or otherwise marketed as a separate product or as part of a product or process. It applies to computer software developed internally and to purchased software. This FASB project was undertaken in response to an AICPA Issues Paper, “Accounting for Costs of Software for Sale or Lease,” and an accounting moratorium imposed by the Securities and Exchange Commission precluding changes in accounting policies related to computer software costs pending FASB action.

This Statement specifies that costs incurred internally in creating a computer software product shall be charged to expense when incurred as research and development until technological feasibility has been established for the product. Technological feasibility is established upon completion of a detail program design or, in its absence, completion of a working model. Thereafter, all software production costs shall be capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product.

This Statement is applicable, on a prospective basis, for financial statements for fiscal years beginning after December 15, 1985. The conclusions reached in this Statement change the predominant practice of expensing all costs of developing and producing a computer software product.

Coming soon. Applying FASB - 86 guidelines to common software development lifecycles (SDLC)

Return on Investment (ROI) and Payback Analysis Template

Here is a simple, easy to use template which you can customize to your specific needs. It calculates and shows investments and benefits driving ROI over time using cost of capital.

Download Here, Microsoft Excel IT Project Investment ROI Analysis