Facilitating SOP 98-1

Organizations seeking to capitalize internal software projects under SOP 98-1 guidelines can facilitate their efforts with TrackerSuite.Net.

What is SOP 98-1?

Under SOP 98-1, companies are required to capitalize the costs associated with developing or purchasing software designated for internal use. Only certain costs may be capitalized, and only within particular stages of the internal software project.

For example, the preliminary stage of an internal software development project typically involves research of the technology to build the software. All incurred costs for research activity must be expensed, as they are not considered a direct cost of the software’s development.

Once the project moves into actual development, costs may be capitalized, but only external direct costs of materials and services utilized in developing or purchasing the software, not costs such as overhead. If the organization contracts outside developers for the project, it may capitalize the payroll (and certain payroll-related costs) for those developers, but not their living expenses such as housing or vehicle rentals.

If the organization chooses to purchase the software instead of developing it, they can only capitalize the actual software. Other costs, such as training, maintenance, typical data conversion routines, unspecified upgrades and re-engineering should be expensed as they are incurred.

Complying with SOP 98-1 offers organizations a means to improve the way they manage information technology, to clarify its value and capabilities on an ongoing basis, and encourage a review of existing software assets and their performance. In this regard it often dovetails with an organization’s Sarbanes Oxley / Purchase to Pay initiatives, providing justification for procuring software or development services for internal projects.

TrackerSuite.Net is an integrated suite of Web based applications that provides a structured environment that ties together projects, time and expense reporting, and purchasing. As well as SOP 98-1, it can also be utilized to capture R&D tax credits for organizations whose R&D is outpacing their growth in revenue.

Managing Internal Software Projects

Project Tracker.Net provides robust project management features, including workflows for project requisition, project templates and milestones that may be leveraged for the preliminary stage of an internal software project. Project Tracker also offers bi-directional integration with Microsoft Project.

In addition to setting up capital budgets for internal software projects, Project Tracker allows organizations to define project tasks with account codes, including whether the work is capital or non-capital.

Tracking the Costs of Internal Software Projects

Project Tracker.Net integrates with Time Tracker.Net, Expense Tracker.Net and Purchase Tracker.Net, allowing costs to be tied directly to the project for improved reporting accuracy. All of these modules streamline and secure the cost reporting process, with automated approval routing and activity logs that collect electronic signatures for all edits and approvals.

Using Time Tracker.Net, project teams can charge time against tasks (including those with capital account codes) created in Project Tracker.Net.

Expense Tracker.Net allows users to report expenses from any location with support for multiple currencies and conversion rates. Expenses are charged against projects, and are assigned account codes (in the case of an internal software project in development, capitalized) by line item.

Using Purchase Tracker.Net, project teams can submit purchase orders charged to internal software projects. A General Ledger section of the purchase order form allows portions of the purchase order to be charged against account codes as capitalized.

Reporting on Project Costs

TrackerSuite.Net modules push their data to the Tracker Data Warehouse, a reporting engine. The Tracker Data Warehouse serves as a single point of access for business intelligence, receiving data from legacy HR and Accounting databases as well as the TrackerSuite.Net modules. With the real-time posting, the Tracker Data Warehouse can provide immediate reports on the progress and total costs, both capitalized and incurred expense, of internal software projects.

The Tracker Data Warehouse may also be utilized to measure the efficiency of internal software assets against the performance of business processes they support. For example, an organization utilizing an online training application might review reports on new employee performance (such as the average time spent on activities and tasks) to determine if their solution needed an overhaul. In this fashion, the Tracker Data Warehouse could be used at both the preliminary stage to establish the need for the internal software project, and at post-implementation to measure results.