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Is Software a Tangible or Intangible Asset?

Tangible Asset

When thinking about software value, most of us immediately think in terms of dollars and cents.  Especially CFOs who talk in terms of where it falls on the organization’s financial statements. Should software that is used within the organization be considered an asset or an expense? This question could be debated over and over depending on who is part of the conversation.

If software is considered to be an asset, it will be found as a line item on the balance sheet. However, it still needs to be broken down further as a tangible or intangible asset. Most would consider software as an intangible asset. It cannot be touched. It is not a physical material or substance. So, it must be intangible, right? Not necessarily. There are exceptions where software is actually deemed to be a tangible asset. 

According to various accounting standards, if software is used to deliver goods and services it can be classified as a tangible asset. An example, would be the software that companies like Snapfish or Shutterfly use for their customers to generate various photo products that result in revenue for their businesses. It would not include a software solution used in their warehouses to keep track of inventory. 

Another criteria to determine if it is a tangible or intangible asset is the cost of the software (to either buy or develop in house). If the cost of one copy of the software is more than $100,000 then it is considered tangible.

So, from the financial perspective, do only tangible software assets add value to the business? Most of us would agree that an inventory management system that streamlines processes and makes the warehouse more efficient adds tremendous value to the organization – it reduces costs, it helps ensure customer satisfaction, etc. 

The Statement of Federal Accounting Standards (SFFAS) No. 10 provides a set of rules about how to treat the transformation of the cost of internal software into value as an asset on the balance sheet. We will not get into these details here in this blog, but it is important to realize that both tangible and intangible software assets can and should be looked at in terms of the value they offer to the bottom line. 

Does your organization have a standard rule it uses in classifying internal software? Is it considered an expense or an asset? Do you have clear guidelines for determining whether to classify your software as a tangible asset or an intangible asset? These questions are important for CIOs and CFOs to discuss to ensure software is allocated as a value to the business.

Written by Michael D. Harris at 05:00
Categories :

CIOs Discuss Prioritizing Projects by Business Value

Mike HarrisLast week I had the pleasure of speaking at The CIO and IT Security Forum in Miami. I also spoke at a CIO Forum this past fall. At these events, my presentations are delivered to small groups of CIOs/CISOs intentionally to allow an interactive and intimate dialogue. That said, I had about 35 people split across two presentations last week. My goal for these presentations is to offer ideas for using software business value to prioritize development projects at the strategic and tactical levels, to provide practical examples, and, above all, to evangelize to try to get more companies doing this stuff – visualizing the business value of their software development efforts.

The attendees were very engaged in this topic. Most of their interest was focused on using cost of delay and weighted shortest job first approaches to prioritize projects. In the first session, the audience requested I go through the calculations in detail, so I incorporated that into the second presentation and again got a positive response. There was something of an “aha” moment in both sessions as they realized that coming up with relative business value for prioritization purposes is actually a practical proposition.

In the first session, we had a substantial group of CISOs, and we talked about where information security investments fit in the business value of software – a particular piece of software development could result in a reduction of risk, but all software development has the potential to add risk of a vulnerability if security is ignored or is simply paid lip service. 

Of the 35 or so participants, just two claimed to attempt to prioritize by business value. They were able to describe their approaches to the other participants. This is one of the great things about CIO Forum events – participants learn as much from their peers as they do from the presenters, and I always try to encourage this interchange during my sessions.

Do you prioritize your software development initiatives by business value? If not, what criteria do you use to prioritize your projects?  If you’d like to learn more about focusing on software business value to prioritize your efforts, click here for white papers, additional blogs, and webinars on the topic.


Mike Harris
CEO

 

Written by Michael D. Harris at 05:00

2016 State of the CIO

If you haven’t, you should take the time to read this year’s State of the CIO Survey. As always, it’s informative and interesting. This year’s major takeaway is that IT leaders are struggling to find a balance between the need for basic, traditional IT-related tasks (security, efficiency) and digital transformation (driving the business).

While you can read the entire article here, we’d like to share some of the things that stood out the most to us. It’s important to note that the survey focused largely on the differences between three types of CIOs: Strategic, transformational and functional.

The role of the CIO is a complex one – so do they find this role to be rewarding? According to the survey, strategic (71%) and transformational (69%) CIOs find their jobs more rewarding than functional (47%) CIOs.

CIOs Rewarding Job

Source: State of the CIO 2016: It's Complicated

Functional IT leaders are the most frustrated of the three types. They are most likely to feel that the CIO is being sidelined (29%), be viewed by other departments as an obstacle to their mission (40%) and say IT is scapegoated when other departments miss their goals (60%).

Functional IT

Source: State of the CIO 2016: It's Complicated

Over time, the number of transformational CIOs is declining, while functional and business strategist CIOs currently account for the same percentage of CIO archetypes (smaller companies require IT leaders to delegate and take on different roles at times, which is why there may be a rise in functional CIOs).

CIO Archetypes

Source: State of the CIO 2016: It's Complicated

In terms of the focus of CIOs, it’s no surprise that the current trend is a focus on security.

Top Areas of Focus

Source: State of the CIO 2016: It's Complicated

IT is increasingly becoming a more valuable sector of the overall business, responsible for contributing to and executing business strategy. So, how many IT leaders pay attention to business-IT alignment? Just fifty-one percent.

Business IT Alignment

Source: State of the CIO 2016: It's Complicated

With so much talk about business alignment, who does the CIO report to? Forty-six percent report to the CEO!

CEO

Source: State of the CIO 2016: It's Complicated

This chart largely speaks for itself, breaking down the business drivers of IT investments by the type of CIO.

Business Drivers of ITSource: State of the CIO 2016: It's Complicated

In order to fully align with the business, many CIOs are realizing the importance of having strong partnerships with other leaders within the company. However, when IT is considered a business partner, the CIO is more likely to be responsible for approving purchases and making final decisions for marketing. In only 33% of companies does marketing have its own technology budget.

IT budget
Source: State of the CIO 2016: It's Complicated

IT is definitely not an industry that stays stagnant – nor is the role of the CIO. It will be interesting to find out where things stand a year from now, as CIOs continue to push for greater strategic integration with the business. At DCG we’re enabling greater IT/business integration with the Value Visualization Framework. As such, we hope to see a continued path forward in this direction.

Source: State of the CIO 2016: It's Complicated

 

Written by Michael D. Harris at 05:00
Categories :

Can Process Be the CIO’s Secret Weapon?

Mike

We’ve touched on this topic before on the blog (here and here, for example), and it always bears repeating – the role of the CIO isn’t just to stay within the IT department and keep things running. That’s the old way of doing things. The best way of adding value these days involves the CIO actively stepping outside of IT to impact the business as a whole.

According to CIO magazine, one way of doing this is helping to streamline business processes. This shift requires a CIO to understand the business, possess organizational skills and apply the process perspective that most CIOs have in order to give the business insight into employees, customers and business partners that other executives may struggle to provide.

An example of this concept at work involves Procter & Gamble’s CIO Filippo Passerini, who teamed IT up with R&D to virtualize the process of redesigning consumer product packaging using 3-D design software; as a result, a mock up now takes hours instead of weeks.

All CIOs have some ability to play a leadership role within the business by utilizing their resources for the good of the business as a whole. CIO Magazine purports that the following steps will help any CIO achieve this:

  • Understanding the business, including competition and the value of the products/services provided.
  • Understanding key processes across the enterprise and then identifying areas of improvement.
  • Collaborating with other executives to execute improvements.
  • Empowering employees to learn more about how business processes operate.

What other steps can a CIO take to streamline business processes? Do you think that this is achievable in today’s business environment?

Read the full article from CIO Magazine, “Where Process is King.”


Mike Harris
DCG President

Written by Michael D. Harris at 05:00
Categories :

CFO's and CIO's need to work to improve the value of IT

Way back in February 2011, CFO research services in collaboration with KPMG published a report entitled, "A New Role for New Times," which sought to identify "Opportunities and Obstacles for the Expanding Finance Function."

For some reason, I found this report again as I was sorting through my holiday reading and I took it home to re-read.  Although, you might accuse me of being the guy with a hammer to whom everything looks like a nail, my recent IT-CMF certification caused me to read this report in a whole new light. The report concludes that, "In the years ahead, finance executives will seek to further improve heir abilities to support the highest-value activities that lead ultimately to better business performance."

OK - no specific mention of IT in this but surely a warning shot across the bows of IT departments and CIO's who are cannot be considered "highest-value activities." Finance executives surveyed for the report claim that, "... technology is the most formidable barrier ... IT systems are out-of-date, inflexible, or unable to support new requirements."

KPMG, as sponsors of the report, highlighted the state of the relationship between finance and IT as a particular concern. This is where CIO's should be proactive, get a simple introductory presentation on IT-CMF (with some basic understanding) and take it to their CFO's. The CFO's cannot fail to be at least interested in a framework whose four macro capabilities are:

  • Managing IT like a business
  • Managing the IT budget
  • Managing the IT capability
  • Managing  IT for business value

KPMG's comments continue that, in the survey, only 39% of CFO's cite their relationship with the IT function as a strength. Wake up CIO's - these are the guys who control the money!


Mike Harris
DCG President

Written by Michael D. Harris at 14:36

"It's frustrating that there are so many failed software projects when I know from personal experience that it's possible to do so much better - and we can help." 
- Mike Harris, DCG Owner

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