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11760RE: [scrumdevelopment] Re: Project Capitalization

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  • Dymond, Robin
    Mar 2, 2006
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      Peter, Sherri

      I think the thing that what is missing for capitalization of a project from this approach is Value. The focus of this tracking effort is on expense, but we don't develop features and stories to spend money. If a project is funded, it should have a business case, and a model that outlines how revenue and profits will be generated, or in the case of regulatory, costs (fines, litigation, etc.). Models you can use are well understood by accountants, they include Net Present Value (NPV), Internal Rate of Return (IRR), Return on Investment (ROI), etc. The valuations of the project determine the capital required.

      A traditional project approach is that after the budget is allocated, the project, its expenses, drivers, and team become completely disassociated from the Value - everything becomes a cost, and treated equivalently. This is a problem, because it removes the primary motivation for doing the project(s) from the view of the team, middle management, supporting services, etc.

      An Agile project should include transparency from the business case to the product backlog and the features that are to be developed. In this way the team knows the Value of the work they are doing in every iteration. This also motivates the team and product owner to find ways to get the first release into production early so the features can begin generating Value for the business. For example, if four planned releases of features account for 60%, 25%, 10%, and 5% of the business value, then this should be reflected in the accounting. The team should then ask: is it possible to release features that deliver 30% of the business value into production at an earlier time?

      Whether you capitalize Scrum (or PM)  as overhead or R&D is debatable, I would argue that you can't have R&D without PM functions, and if that person is 100% dedicated to development projects, then they are in the Capitalization/R&D bucket.

      The main thing we now need to do is get away from the cost based mantra of IT, and start measuring output of Agile teams by value generated. This will force more rigour on the business case and planning process, and give program managers a much more effective tool to manage priorities from multiple projects.

      Robin Dymond

      -----Original Message-----
      From: scrumdevelopment@yahoogroups.com [mailto:scrumdevelopment@yahoogroups.com] On Behalf Of Sherri Dotson
      Sent: Friday, February 03, 2006 9:03 AM
      To: scrumdevelopment@yahoogroups.com
      Subject: Re: [scrumdevelopment] Re: Project Capitalization

      This is great information and it will be great to
      exchange dialogue on your experiences again. : ). 

      We must talk soon.
      Sherri Dotson

      --- pborsella <pborsella@...> wrote:

      > --- In
      > "aliciayanik0724"
      <aliciayanik0724@y...> wrote:
      > >
      > > I'm sure this has
      been asked and answered before,
      > but a quick search
      > > didn't
      turn up enough information for me.  I'm
      > looking to
      > > how other organizations, while using Scrum,
      > the data
      > necessary
      > > to capitalize projects
      (and pass an audit).
      > >
      > Alicia...the first thing we
      had to do is agree that
      > we needed to
      > record our time purely for
      accounting purposes.
      > This is an important
      > and sensitive matter,
      because we don't want time
      > tracking to be used
      > as an indication
      of productivity.  Next, we worked
      > with our Finance
      department to understand which activities qualify
      > for capital
      > which do not.  So, for example, "development" would
      > be
      a capital
      > activity, but "project management" might not
      > What does "project management" have to do with
      Scrum?  This is the
      > Finance category that we used to account for
      > daily Scrum.  15
      > minutes a day x the number of folks on
      the team x
      > multiple capital
      > projects adds up!  This amount
      of time needs to be
      > recorded so Finance
      > knows how much gets
      capped and how much doesn't.
      > Remember, "project
      > management" is
      an example of a non-capital
      > activity...your Finance
      > dept. may
      have others.
      > So where do you record this?  We don't want
      > interfere with the
      > logging of "what's left" burndown
      maintenance, so we
      > keep the Finance
      > time separate from the
      burndown.  This of course
      > meant that we needed
      > a
      time-tracking tool.  Once you know which
      > activities don't
      > you can then ensure that the time spent on those
      activities get
      > recorded and submitted to Finance.
      > I'm
      trying to explain in a few paragraphs what took
      > many hours to
      devise.  You'll need to spend some time evaluating
      > the best way to
      > what you're asking without violating Scrum
      > I hope this helps

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