How does R&D Capitalization work?
At Intuned, we have been working with some of our customers to automate the process of reporting R&D capitalization. Since the reporting can depend on the team's process and the way they work, different teams (even within the same company) may approach this task differently.
The overall process can be broken down into three main steps:
Step 1: Identifying Capitalizable Work
The first step is determining which work is "capitalizable." This can be done using labels, custom fields, or by using a spreadsheet where each work item is mapped to a value indicating whether or not it is capitalizable. It's important to work with the accounting team to understand what work can be capitalized, as this can vary by company and industry. Typically, only 10-30% of work is capitalizable.
Step 2: Calculating the Amount of Work Done
This is often the most challenging step, as it involves figuring out how much work was done per task and then aggregating the data based on different dimensions. Some of the approaches that we have seen include:
- Timing the duration of the task: You can access a history table that provides a full log of all tasks and the changes made to them. You can use this table to calculate the time spent in different statuses.
- Using story point estimates: If a simple mapping between story points and the amount of work or time required for a task exists, this can be used to estimate how much work was done.
- Counting the number of tasks: If you have an estimate of how long tasks generally take, you can create a simple formula by multiplying the number of tasks by the average time required for each task.
- Tracking development time: If you have access to data from tools such as GitHub and Jira, you can pull the difference between the first commit and the last commit to measure how much time was spent coding for the task.
Step 3: Calculating the Cost per Hour of Work
The final step is to calculate the cost per hour of work based on the salaries and other costs associated with the people who performed the work. You can also add a burden rate and overhead rate (such as time spent in meetings, all-hands, and on vacation) to this calculation. These calculations can be formalized within Intuned and developed into a dashboard, allowing you to review this information on a regular basis or as needed.
Last updated on February 7, 2023