Fund Your Transformation Efforts through Increased Agile ......2020/06/17 · • Agile...
Transcript of 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
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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 @:
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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
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Group Poll
What percentage of your organization’s Agile investments are you currently capitalizing?
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Increased Agile Capitalization: The Case for Change
▪ 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 assessing Agile Capitalization
▪ Methods: 3 high-level approaches for tracking Agile Capitalization efforts
▪ Align: Your key stakeholders on key topics
▪ Implement: Review a sample implementation roadmap
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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
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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
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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.
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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
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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
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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
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Improved Product Investment Insights
Product Expenses
▪ Development / Engineering Costs
▪ Platform / Shared Component Costs
▪ Infrastructure Consumption Costs
▪ Other Allocated Expenses
Business Unit Products
Product Expenses
▪ Development / Engineering Costs
▪ Content Licensing Costs
▪ Infrastructure Consumption Costs
▪ Other Allocated Expenses
Platforms / Shared Components
Product Expenses
▪ Development / Engineering Costs
▪ Support Costs
▪ Other Allocated Expenses
Consumption-based Infrastructure
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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:
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Increased Agile Capitalization: Understand
▪ 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 assessing Agile Capitalization
▪ Methods: 3 high-level approaches for tracking Agile Capitalization efforts
▪ Align: Your key stakeholders on key topics
▪ Implement: Review a sample implementation roadmap
Copyright© AgilityHealth® | www.agilityhealthradar.com | Accelerating Enterprise Business Agility
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
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But Agile is Today’s Pre-Dominant Delivery Method (particularly in Tech)
Source = Journal of Accountancy
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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
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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.
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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
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Key Agile Capitalization Misconceptions: #2
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
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Key Agile Capitalization Misconceptions: #3
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
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Key Agile Capitalization Misconceptions: #4
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
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Key Agile Capitalization Misconceptions: #5
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
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Increased Agile Capitalization: Assess
▪ 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 assessing Agile Capitalization
▪ Methods: 3 high-level approaches for tracking Agile Capitalization efforts
▪ Align: Your key stakeholders on key topics
▪ Implement: Review a sample implementation roadmap
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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!
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Agile Capitalization
Discovery Radar
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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/
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Workshop: Complete the Assessment
How ready are we?
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Your Results
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Increased Agile Capitalization: Evaluate
▪ 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 assessing Agile Capitalization
▪ Methods: 3 high-level approaches for tracking Agile Capitalization efforts
▪ Align: Your key stakeholders on key topics
▪ Implement: Review a sample implementation roadmap
Copyright© AgilityHealth® | www.agilityhealthradar.com | Accelerating Enterprise Business Agility
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
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Increased Agile Capitalization: Methods
▪ 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 assessing Agile Capitalization
▪ Methods: 3 high-level approaches for tracking Agile Capitalization efforts
▪ Align: Your key stakeholders on key topics
▪ Implement: Review a sample implementation roadmap
Copyright© AgilityHealth® | www.agilityhealthradar.com | Accelerating Enterprise Business Agility
3 High-level Approaches for tracking Agile Capitalization efforts
Time
Tracking
Story Point
TrackingHeuristic-driven Completed
Story Tracking
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Increased Agile Capitalization: Align
▪ 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 assessing Agile Capitalization
▪ Methods: 3 high-level approaches for tracking Agile Capitalization efforts
▪ Align: Your key stakeholders on key topics
▪ Implement: Review a sample implementation roadmap
Copyright© AgilityHealth® | www.agilityhealthradar.com | Accelerating Enterprise Business Agility
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
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Increased Agile Capitalization: Implement
▪ 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 assessing Agile Capitalization
▪ Methods: 3 high-level approaches for tracking Agile Capitalization efforts
▪ Align: Your key stakeholders on key topics
▪ Implement: Review a sample implementation roadmap
Copyright© AgilityHealth® | www.agilityhealthradar.com | Accelerating Enterprise Business Agility
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
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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
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