The Cost Watch for human resources generally falls into two areas:

1. Capital Expense (CAPEX) – Generally the human resource costs associated with the initial planning, designing, developing and deploying of the Business Solutions
2. Operating Expense (OPEX) – Generally the human resource costs associated with the management of the deployed software products over the life time of their deployment

There can be overlap and exceptions to the rules above but we will concentrate on these areas for our Cost Watch metrics.

Software Development as a CAPEX and OPEX

The Financial Reporting Standard 10: Goodwill and Intangible Assets reflects the below belief from Investopedia:

There are two general rules that are applied to determine whether or not software must be capitalized as PPE or expensed.

If software meets the criteria of property, plant and equipment, meaning it will be used in providing goods and services, and then it can be classified as PPE.

For example, a computer company would capitalize computer software as PPE because it is used in a major part of the company’s operations that is intended to provide profits.

However, software that provides a means for a warehouse to efficiently perform inventory management duties would not be incorporated as PPE.

The second capitalization criterion is based on cost.

If an individual copy of the software package costs more than $100,000 it is classified in the PPE category.

The software would then be amortized, like other assets, over its useful life.

However, as a general rule, if two software copies are purchased for $150,000 they are accounted for as intangible assets.

If the two preceding conditions are not met, then the software, whether purchased or created internally would be considered an intangible asset.

The basic nature of the business and the stage of software development also play a significant role in the classification decision.

The Bottom Line:

… If Software is a Public Offering intended to provide Profit

 …… It is a CAPEX Intangible Asset

… If Software solely supports your Public Offering

…… It is an Operational Expense (OPEX)

Regardless of the type we need to formally track the Engagement Resources during all phases of the planning, designing, developing, deploying and maintenance phases in a way that can quantity the Total Cost of Ownership over the entire process, not just the development phase.

Human Resource Cost Watch,
in conjunction with the Resource Cost Metric Cost Watch,
helps to support the
Daily Development Burn Cost Watch

The Change Request Cost Watch is a Post Deployment metric.

Any request for changes during development is managed by the Product Backlog, allocated to a Sprint through the Sprint Backlog.

The costs associated with those efforts are tracked as Development Resource Expenses as either CAPEX or OPEX.

The cost of changes needs to measure the following resources direct activities for completing the Change Request:

1. Change Request Reporting – The costs associated with the generation of a Change Request
2. Change Request Due Diligence – The Strengths, Weaknesses, Opportunities and Threats (SWOT) of the business value for the change: The ROI
3. Change Request Management – The costs associated with administering the request through its life cycle
4. Change Request Implementation – The costs associated with implementing the change including planning, design, development, testing, deployment, documentation and new process implementation training

Changes to an Application after Deployment

… Must Go Through Rigorous Vetting Process

Changes to a deployed business solution are expensive.
They also introduce the possibility of regressive artifacts
that could adversely affect your business

The costs of administration of delivered software solutions are generally absorbed within a generic administration cost bucket.

This makes it difficult to quantify the true Cost versus Benefit received from a delivered solution as administration costs are accumulative and can be quite significant.

Some of the overhead expenses that are generally not associated with the total cost of a deployed solution are:

1. Talent Recruiting – Resource requirements for the planning, design, development, testing, deployment, and lifetime management of a deployed solution.
2. Training – In-house process training and technological skills
3. Change Management – Costs associated with process and technology changes
4. Human Resources – Administration of resources that are external to the company or possible part-time or time boxed
5. Corporate Real Estate – Physical space required to support the planning, design, development, testing, deployment, and lifetime management of a deployed solution
6. Corporate Assets – Physical assets, such as technology, communications, cubicles, required to support the planning, design, development, testing, deployment, and lifetime management of a deployed solution
7. Administration Overhead – Additional time required to facilitate the items listed above

The Goal is not to Obsess over All the Items Above

… The Goal is to be Aware of the Items

Success is defined as the understanding that there are costs
that are generally hidden in other areas that prevent
a true understanding of the Total Cost of Ownership
of a deployed solution

The Operating Expenses of Technology are significant.

Understanding the dynamics of Operations and Maintenance costs as they pertain to the Business Transformation is important for quantifying the “Value Added Results” gained from the commitment to the change over time.

Operations and Maintenance costs are more than just the additional resources or support personnel.

Some of the areas sometimes not realized:

1. Hardware Facilities – Hardware, software and licensing costs are not the only expenses that a Business Transformation effects. Real estate and power are just a few expenses that can be hidden from view
2. Security Logistics – Physical and human resource security costs can be augmented by a significant Business Transformation
3. Technology Bandwidth – Unpredictable technology requirements that are discovered after the successful roll-out of the Business Transformation need to be addressed
   

Forward Thinking is Required That Extends Past

… The Obvious Expenses of a Business Transformation Engagement

The major objective with this Cost Watch
is to be cognizant of costs that may
be obscured by current processes

The Information Technology Cost Metrics areas below represents areas of awareness and not necessary needs to be addressed in all development circumstances.

The Areas of Concern:

1. Creating and supporting the required engagement environments
   1. Development Environments
      1. Developers Sandbox
      2. Daily Development Build Environment
   2. Quality Assurance (QA) Environment
   3. Business Demonstration Sprint Product Showcase Environment
   4. Client Facing Environments
      1. User Acceptance Testing Environment
      2. Production Staging Environment
      3. Production Environment
2. Supporting Applications
   1. Development Tools
      1. Development Environment Software
      2. Code Quality Tools
      3. Code Development Plugins
      4. Performance Tools
      5. User Interface Development Tools
      6. Application Code Tools – Cross Cutting Concerns
   2. Continuous Integration
   3. Agile Process Management Tools
      1. Sprint Tool
      2. Bug Reporting Tool
      3. QA Testing Tools
   4. Operating Systems
      1. Development Workstations – Virtual and Physical
      2. Application Servers
      3. Database Servers
      4. Environments – Storage Area Networks
3. Development Appliances
   1. Database Clusters
   2. Firewalls
   3. Proxy Servers
   4. Security Gateway Appliances

Do Not Assume Items are Available for Development
… Simply Because They Exist in the Current Environment

It is very easy for a company to simply add to their existing infrastructure
the support the Business Transformation without encapsulating the
items into the Business Transformation paradigm

What are the elements of the Sprint Resource Cost Metric?

The success criteria for a project are not just quality of Technologists that are assigned to the engagement.

The Sprint Team is a collection of Technologists, Business Experts and an engagement Management Team.

Proper planning requires an understanding and a commitment by the Client to provide funding for the key elements of an engagement.

In an Agile Sprint Iteration these roles must be filled with skilled resources or the cost of the project will be greater than expected:

1. Business Subject Matter Experts (SME) – Resources that the Sprint Team member can go to with specific questions on the Sprint User Story Task that is being worked on for a defined Epic’s Feature Sprint User Story.
2. Business Analysts (BA) – Resources that provide Business Domain Knowledge for the projects. There should be one BA per Sprint Team.
3. Team Technologists – Resources that Architect, Design, Develop and Deploy solutions that meet the Business Analysts User Story Acceptance Criteria. This includes the Network Engineers required to support the Development, QA, Demonstration and Client-facing environments for User Acceptance Testing and the Corporate Production environments
4. Quality Assurance Tester (QA) – Resources that work with the Developers to ensure that the User Story Acceptance Criteria are met. This is a partnership and not a competitive relationship.
5. Product Owners (PO) – One or more resources who owns the success or failure of their Vertical Product development. All Sprint Teams in the Vertical Product Sector and their Team Members ability to deliver the defined User Story Velocity, story points completed, is the responsibility of the Product Owner. The PO role is also to protect all teams from management “Noise” that could affect their deliveries
6. Scum Masters (SM) – One or more resources responsible for managing a single Sprint Team. The role of the Scrum Master is to enable their team to be self-organizing. The SM will hold the Daily Stand-up meeting and remove any blocks or impediments that could jeopardize a team member’s daily success. The Scrum Master role is also to protect the team from outside “Noise” that could affect their deliveries  
7. Sprint Team – A Sprint Team consists of a Lead Developer and generally no more than three Heads-down Coders along with a dedicated BA and QA member. The PO is the senior member of the Sprint Team and may participate in the Stand-ups as required for team clarity

A clear understanding of the roles and their responsibilities is essential for lowering Daily Burn Costs.

If any of these roles are not staffed the activities associated with these role do not disappear, they still must be completed.

If these critical activities are assigned as collateral duties or worst yet, not assigned at all to skilled resources, then an escalation of engagement expenses is guaranteed.

Do Not Be Penny Wise

… And Dollar Foolish

– From the phrase “Penny-wise and Pound-foolish”: First known use: 1607

Creating a means of measuring the actual resource costs and then comparing them to the estimated role costs will help to manage the engagement over the Lifetime of the Sprint Iterations.

Costs adjustments can be made, and the rationalization supported by the metrics, before the lack of skilled resources adds unnecessary expense to a project.

Trying to save a dollar on the shoulders
of Sprint Team Members generally
will cost up to five dollars in the
Total Cost of Ownership
of the deployed solution

The cost of the logistics required to support the Business Transformation process can be difficult to quantify on a daily basis.

The goal is to estimate the following expenses so that a true representation of the Business Value of the daily activities can be reported by the Chief Financial Officer to the Company’s Senior Management.

Some daily expenses related to an Agile Sprint Iteration that are not resource centric:

1. The Cost of Real Estate – The cubicles, offices and conference rooms required for a successful engagement.
2. Communications – Expenses for Email Accounts, telephones, Instant Messaging and paper printouts
3. Development Hardware and Software – Costs related to the required engagement environments: Development computers both physical and virtual
4. Environment Hardware and Software – The expense of required environments for Development, QA, Product Demonstrations and User Acceptance Testing along with Production testing environments
5. Company Resources – Costs related to the use of company resources not directly aligned to the project
6. Facilities – Miscellaneous aggregated expenses such as building security, utilities and parking
7. Working Lunch Meals – The cost of provided meals when meetings and training are scheduled during meal hours
8. Team Tools – The expense of items such as meeting projectors, white boards, office supplies and other team required expendable

Some of these items can be aggregated from monthly estimations to a daily cost.

There are items that can be directly assigned to a daily cost such as working lunch costs.

Some items are almost impossible to measure, such as Company Resources, and awareness of the expense is enough to manage it.

If You Can’t Measure It

… You Can’t Manage It

Understanding these “Hidden” costs will create
a better understanding of the true expense
of the Business Transformation