On one hand, it’s essential for small SaaS companies to capitalize software R&D costs promptly and accurately. On the other hand, we can’t expect engineers or engineering managers to devote too much time to software R&D cost capitalization, as it falls outside the scope of their day-to-day job responsibilities. So, how can engineering teams still accomplish R&D cost capitalization without deprioritizing other work? What makes R&D cost capitalization so time-consuming in the first place?
For a quick refresher on software R&D cost capitalization read 7 Steps to Streamline the Software R&D Cost Capitalization Process.
The Challenges of Software R&D Cost Capitalization
In particular, capitalizing software R&D costs can be challenging due to the difficulty in measuring the costs associated with R&D projects, including the costs of labor, materials, and overhead. These costs are often spread out over an extended period of time and are difficult to allocate to specific projects, which can make it difficult for companies to accurately determine the potential benefits and outcomes of these projects.
Let’s take a closer look at some of these challenges.
Difficulty in Measurement
Measuring the costs associated with R&D projects can be a complex and challenging task due to various factors. One of the key factors that contribute to this difficulty is the nature of engineering work, which can be hard to track and allocate costs to. Unlike other business activities, engineering work can be multifaceted and involve a great deal of collaboration and teamwork.
Engineers often work on multiple projects simultaneously, making it challenging to keep track of the time and resources they allocate to each project. Moreover, engineering work involves different phases, each with varying costs. For instance, the early stages of an R&D project may require more research and experimentation, which can be time-consuming and costly, while the later stages may require more prototyping and testing, which can require different types of resources.
Additionally, it can be difficult to assign costs to specific individuals or projects due to the collaborative nature of engineering work. Engineers may work together on a project, and their contributions may not be easily distinguishable.
When it comes to capitalizing software R&D costs, companies face a significant challenge—the time-sensitive nature of the process. With the need to finalize financial reporting at the end of a month or quarter, companies have a short window to accurately track and allocate costs associated with R&D projects.
This time pressure can lead to errors and inaccuracies in project expenses, resulting in the misallocation of costs that can have serious legal and regulatory consequences. Additionally, employees involved in the process may feel rushed and not have enough time to thoroughly review and document project expenses, leading to the use of inaccurate data or assumptions.
The time-sensitive nature of software R&D cost capitalization can also create additional pressure on companies to prioritize completing financial reporting over other aspects of project management. This can make it challenging to effectively monitor progress, identify risks, and make necessary adjustments to ensure project success.
Overall, it’s essential for companies to recognize the time-sensitive nature of software R&D cost capitalization and plan accordingly to avoid errors and inaccuracies. By prioritizing accurate and thorough tracking and allocation of costs, companies can ensure that their financial reporting is reliable and their R&D projects are effectively managed for success.
The Difficulty in Manage Cross-Team Work
When it comes to capitalizing software R&D costs, collaboration is key. R&D projects typically involve multiple teams, including product management, engineering, finance, and auditing, who all need to work together to ensure accurate financial reporting. But this collaborative process can be challenging, especially when teams have different priorities or don’t fully understand each other’s roles and responsibilities.
- Product teams are responsible for creating customer-facing R&D projects and setting goals and timelines.
- Engineering teams carry out the work involved in R&D projects and must accurately track their time and expenses while ensuring that they are allocated to the correct projects and phases.
- Engineering managers oversee their team’s work and ensure they are meeting project goals and timelines.
- Finance teams play a critical role in logging and documenting project expenses and ensuring they are accurately recorded in the company’s financial statements. They must work closely with engineering teams to track expenses and allocate them correctly, while also validating the accuracy of financial statements with auditing teams.
The need for cross-team collaboration can make it challenging for companies to accurately track and allocate software R&D costs. Miscommunications or misunderstandings can occur, leading to errors or inaccuracies in financial reporting. However, by prioritizing open and transparent communication between teams and ensuring that everyone understands their roles and responsibilities, companies can overcome these challenges.
To foster a culture of collaboration, companies must provide teams with the necessary resources and support. This includes tools for accurate tracking and reporting of expenses, as well as training and education to ensure everyone understands the software R&D cost capitalization process. By doing so, companies can successfully track and allocate software R&D costs while ensuring accurate financial reporting.
Why Iterable Uses Jellyfish
Jellyfish is a software tool that can provide many benefits when used for R&D project cost capitalization. With Jellyfish, we automated many of the processes involved in R&D project cost capitalization, access a dedicated customer success team that understands our needs and can provide support as needed, customize the functions and view specific baked on our needs and requirements, improved accuracy, and gain higher-level information that can inform strategic decision-making.
Here are some ways in which Jellyfish can be used for R&D project cost capitalization:
- Track Project Costs: Jellyfish allows us to track all expenses related to your R&D project, including salaries, equipment, and materials. By doing so, we can determine the total cost of the project.
- Allocate Costs: Jellyfish allows us to allocate costs to specific projects, phases, or tasks. This enables us to track the costs associated with each individual R&D project, by person, by epic etc which is important for capitalization purposes.
- Customized Capitalization Rules: Jellyfish can help us apply capitalization rules to our R&D project costs. For example, by using jellyfish, we can connect our customized jira field to Jellyfish, giving engineers different allowance percentages by level.
- Generate Reports: Jellyfish provides various reporting features that allow us to generate reports on project costs and capitalization. This can help us to ensure compliance with accounting standards and provide stakeholders with accurate information about the financial position of your company.
- Integrate with Other Tools: Jellyfish can integrate with other tools such as Jira and Git, which can provide additional data on project costs and progress. This can help us to make more informed decisions about capitalization and improve your R&D project management overall.
Moreover, they provide exceptional support and service for optimal Jellyfish utilization. I have been extremely satisfied with the reliable and responsive support we have received from the Jellyfish solution team and tech support team. Our dedicated Customer Success Manager (CSM) meets with us weekly to offer guidance, answer questions, and configure our setup for optimal utilization. Their real-time response to address all our concerns has built our confidence in utilizing Jellyfish to its full potential. We truly appreciate the exceptional service and support provided by the Jellyfish team.
R&D Cost Capitalization in the Future
Our small SaaS team was able to achieve improved collaboration by closely working with each other, Jellyfish, and external auditor teams. Our focus on executing all processes correctly while keeping an eye on future scalability has been key to our success. Plus, the transparent and easily traceable data in Jellyfish has given us greater insight into our R&D project progress, enabling us to track deliverables and gain invaluable insights into our development process. We remain confident that by continuing this collaboration and utilizing Jellyfish data, we can achieve our company’s future goals with ease.