The organisation has a capitalisation target.
Everyone encourages managers to increase the capitalisation of their areas. If they don't, they won't get funded.
The simplest way to increase capitalisation rate is simply changing numbers in spreadsheets. This is mostly independent of whether or not the work is creating an asset because it's easier to move a number than it is to argue.
Everyone encourages managers to increase the capitalisation of their areas. If they don't, they won't get funded.
The simplest way to increase capitalisation rate is simply changing numbers in spreadsheets. This is mostly independent of whether or not the work is creating an asset because it's easier to move a number than it is to argue.
I've been told that from a corporate finance perspective, the priority is:
- Appropriate accounting of capital and operating expense
- Effective use of financial investment to achieve strategic goals
"How might we meet our capitalisation target?" is a question that leads organisations away from either of those goals.
Instead, if we want appropriate accounting, we might ask...
"How might we improve the accuracy of our accounting?"This might lead to...
- Training sessions, guides, etc. on appropriate capitalisation
- Integration with tooling
- Only assessing capitalisation after delivery of the assets. That is, operating using OPEX and only journalling to CAPEX upon release. I'd call this "as-built accounting".
Instead, if we want to have more effective financial investment, we would just ask that question...
"How might we be more effective with our financial investment?"This might lead to...
- Clearer communication of strategic intent
- Collective prioritisation of the portfolio
- Smaller batch sizes to allow for staged investment
- More sophisticated ways of assessing investments (e.g. Cost of Delay)
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