fund your transformation efforts through increased agile ......2020/06/17 · • agile...

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Fund Your Transformation Efforts through Increased Agile Capitalization

• Agile Coach/Trainer with 18 years Lean & Agile experience

• Key Contributor to AgilityHealth, AgileVideosand EBA Model

• Training Director, Public Speaker, Facilitator• Adventure Sports Enthusiast

Bryan TewEnterprise Business Agility Strategist

Copyright© AgilityHealth® | www.agilityhealthradar.com | Accelerating Enterprise Business Agility

About Me – Jason Molesworth

▪ Passionate about:

- Business Agility & Helping Organizations Grow

- Complex Strategy & Transformation

- Digital Transformation

- Developing People & Teams

- Finding healthier, more sustainable ways of working

- Music (all kinds…)

- My family and exploring new things together…

Professional Experience – COO, Vice President, and Director-Level Positions @:

http://www.agilityhealthradar.com/


Today’s Learning Outcomes

▪ The Case for Change: Benefits associated with increased Agile Capitalization

▪ Understand: Key differences between Waterfall and Agile Capitalization

▪ Assess: Your organizational readiness to implement Agile Capitalization

▪ Evaluate: An 8 step PoC approach to exploring Agile Capitalization

▪ Methods: 3 high-level approaches for tracking Agile Capitalization efforts

▪ Align: Your key stakeholders on priority topics

▪ Implement: Review a sample implementation roadmap


Copyright© AgilityHealth® | Confidential & Proprietary

Group Poll

What percentage of your organization’s Agile investments are you currently capitalizing?


Increased Agile Capitalization: The Case for Change




▪ Evaluate: An 8 step PoC approach to assessing Agile Capitalization


▪ Align: Your key stakeholders on key topics




A Primer: An Introduction to Agile Capitalization

The Lingering Question:

To Expense or Capitalize Agile Software Development Investments?

Software Expenses

Costs incurred to research,

assess the feasibility, and

support working software.

Capitalized Software Assets

Investments made to purchase

or create long-lived (> 2 years)

software-based assets that will

yield ongoing value for the

organization.

Definitions GAAP Guiding Principles

• Objectivity Principle• Materiality Principle• Consistency Principle• Conservativism Principle• Matching Principle

• Treat assets as assets

• Align key stakeholders

• Leverage proven case studies

• Avoid negative incentives for adoption of best practices

Practical Considerations



The Potential Advantages of Increased Agile Capitalization

Increased

OpEx

Flexibility

Incremental

OpEx Capacity for

Transformation Efforts

Increased accuracy

of your

financial reporting

Improve & Accelerate

your Agile

Adoption Efforts

Increase the

Transparency of your

Product Investments

Potentially limit overhead

associated with detailed

time tracking

Direct Benefits

“Bonus” Benefits



The Opportunity: A Direct Impact to Bottom Lines

For every $10 Million of capitalization-eligible Agile Investments1 you choose to expense,

you may be losing out on as much as $10MM of OpEx flexibility

over the next 24 – 36 months…

Base Case: 0% Capitalization Impact of $10MM Capitalized over 3 Years

Year 1 Year 1 Year 2 Year 3

1 Note: Target Capitalization rates for Agile Teams range from 50% - 75% of total team annual costs.



And Funding Capacity for Core Transformation Needs

That OpEx Capacity could then

be leveraged to fund a wide

range of transformational

priorities, including:

▪ Digital Transformation

▪ Path to Cloud

▪ New Product Development

▪ Machine Learning & AI

▪ Robotic Process Automation

▪ Enterprise Agility & Agile Maturity



As well as Improved Accuracy of Financial Reporting

Current Capitalization Rates

present a “Run the Business”-

heavy traditional organization

When most organizations want

to be viewed as

Innovation-Driven



Agile Capitalization Also Incents: Improved Core Agile Practices

Consolidated

Team

Backlogs

Stable,

Cross-functional

Teams

Consistent,

Team-led

Estimation

Pragmatic Planning

(based on explicit priority

& team capacity)

Consistent

Inspect and Adapt

Practices

Clear

Delivery

Metrics

Key Agile Capitalization Enablers = Improved Team Performance & Health



Improved Product Investment Insights

Product Expenses

▪ Development / Engineering Costs

▪ Platform / Shared Component Costs

▪ Infrastructure Consumption Costs

▪ Other Allocated Expenses

Business Unit Products

Product Expenses


▪ Content Licensing Costs

▪ Infrastructure Consumption Costs


Platforms / Shared Components

Product Expenses


▪ Support Costs


Consumption-based Infrastructure



And Streamlined Administrative Overhead

Are only

60% - 70%

accurate

at best

Often

limit innovation

in creative tech

development

Create overhead,

where

more efficient

alternatives exist

Time Tracking Practices:



Increased Agile Capitalization: Understand










Traditional SW Capitalization Processes Were Designed for “Waterfall” delivery

Governing Accounting Policy:

▪ Software for External Sale or Lease:

- ASC 985-20

- FASB 86

▪ Software for Internal Use:

- FASB SOP 98-1

- FASB ASC 350-40

Source = Journal of Accountancy



But Agile is Today’s Pre-Dominant Delivery Method (particularly in Tech)

Source = Journal of Accountancy



A Deeper Look at Capitalize vs Expense for Agile Development

Commit to Funding

Product Enhancement

End

Post-Cap

Expense:

▪ Maintenance

▪ Support

▪ Data Migration

Capitalize:

▪ Salaries: Dev, Test, SM, PO, BA, UX, etc.

▪ Infrastructure and Architecture setup

▪ Defects in new functionality

▪ Requirements & Backlog Refinement

▪ Team and Project Ceremonies

Pre-Cap

Expense:

▪ Discovery

▪ Planning

▪ Funding

▪ Staffing

▪ Chartering

▪ Feasibility



When agile projects are expensed, they take an immediate cost hit. Because of this increased upfront reported cost, agile initiatives look less appealing economically and may be less likely to receive funding

or may receive a lower overall development budget.



Key Agile Capitalization Misconceptions: #1

Agile software is not capitalizable because it’s short-lived in nature and

frequently updated

Agile development delivers valuable long-lived assets

that are frequently and iteratively improved and

therefore should typically be reflected as assets in an

organization’s financial reporting




Software capitalization principles can’t be mapped

to Agile development practices

The principles within traditional accounting standards have been

successfully mapped to Agile methods across a wide

range of industries and organizations




It is difficult to track and report labor in Agile

development initiatives

Through the utilization of Product Backlog items it is much easier to track and

report labor against specific development efforts




Capitalization of Agile development will increase the risk of future financial restatement of earnings

Agile practices actually decrease the risk of non-

working software and associated financial restatements due to

frequent and iterative delivery cycles




Expensing Agile development costs is the

conservative and cautious approach and safeguards

the organization from undue risk

Expense-only based accounting practices may create negative incentives

for Agile adoption and place your organization at a distinct competitive

disadvantage



Increased Agile Capitalization: Assess










How Can I Know If My Organization is Ready for Agile Capitalization?

The first step is to assess where

we are today…luckily, we’ve made

it easy for you!



Agile Capitalization

Discovery Radar



Instructions for Completing the Assessment

1. Visit this URL and Start Assessment

2. Complete the short survey

3. View results, toggle to benchmark view

https://agilityhealthradar.com/kiosk/agile-capitalization/





Workshop: Complete the Assessment

How ready are we?



Your Results



Increased Agile Capitalization: Evaluate










The 8 High-Level Steps for a pragmatic Agile Capitalization PoC

Align on the goal

1

Engage the right

stakeholders to

design the solution*

2

Agree to a

PoC, Validate,

& Scale approach

3

Align on test

requirements

before jumping in

4

Review preliminary

CapEx vs OpEx

criteria

5

Align on tracking

method to test

6

Agree to PoC

scope, timeline, and

target outcomes

7

Train and support

PoC participants

8



Increased Agile Capitalization: Methods










3 High-level Approaches for tracking Agile Capitalization efforts

Time

Tracking

Story Point

TrackingHeuristic-driven Completed

Story Tracking



Increased Agile Capitalization: Align










There are a wide range of Stakeholders & Topics to align on…

Key Stakeholder Groups

▪ Executive Leadership

▪ Product Management

▪ Engineering / Development

▪ Finance

▪ FP&A

▪ HR

▪ Controller Group

▪ Compliance

▪ Investor Relations

▪ Enterprise Solutions - Tools

▪ Internal Audit

▪ External Audit

Priority Alignment Topics

▪ Conceptual Alignment

▪ Target Outcomes

▪ Education & Awareness

▪ Opportunity Size & Scope

▪ Change Management Requirements

▪ Reporting& Tooling Needs

▪ Stable Team Design

▪ PoC Strategy & Engagement

▪ Defensibility Needs / Requirements

▪ Communications Plan

▪ Investor Messaging

▪ Training Needs



Increased Agile Capitalization: Implement










A Directional Timeline to Test & Validate

Review opportunity and

proposed approach with

stakeholders and align on

PoC plan.

Alignment

30-60 Days

Engage stakeholders

and complete all

necessary pre-PoC

prep work.

PoC Prep

30-90 Days

Conduct PoC to:

• Operationalize Agile Capitalization across 2 or more teams

• Engage all stakeholders to identify any concerns, optimize proposed

processes, and gain alignment on the go-forward strategy

• Accelerate Agile Ways of Working efforts for improved performance,

collaboration, innovation, metrics, and P&L clarity.

Proof of Concept

90 Days

Align on go-forward

strategy and

operationalize

agreed to plan.

“Go-Wide(r)”

Ongoing



Key Takeaways

If you are capitalizing less than 50-75% of your Agile development efforts, you may be leaving millions or tens of millions of OpEx flexibility on the table

This flexibility could be leveraged to fund your critical Transformation efforts over the next 18-24 months

There is a clear path to increasing your Agile capitalization rates without exposing your organization to undue risk and compelling use cases to leverage

By taking an incremental, POC approach you can engage the full range of stakeholders, align and move forward confidently

Other Benefits of Increased Agile Capitalization may also include:• Removal of negative incentives for broader based Agile adoption• Increased tax efficiency and transparency of Agile based investments• Improved transparency into the true costs of teams and development initiatives• Streamlined administrative overhead


Copyright© AgilityHealth®

We’d Love to Connect!

• Sign up for a 30 Minute exploratory session

• Slides will be available for download

• Webinar recording will be accessible at: https://agilityhealthradar.com/webinars/

• Learn more about AgilityHealth …

• Customers:• Contact us to turn on this radar to leverage

internally: [email protected]

• New to AgilityHealth?• Contact us to learn more about the platform and

other radars

• Continue to use free Kiosk version

• [email protected]

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mailto:[email protected]

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Thank You!


fund your transformation efforts through increased agile ......2020/06/17 · • agile...

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