How Engineering and Product Managers Can Automate R&D Cost Capitalization

Published: July 1, 2024  |  10 min read

Author: Thierry Donneau-Golencer

Manual R&D cost capitalization is a tedious, error-prone process for engineering and product managers. Faros AI, a leading software engineering intelligence platform, automates this process—saving time, improving accuracy, and ensuring compliance for large-scale engineering organizations.

What is Software Development Capitalization?

Software development capitalization is an accounting practice that allows companies to treat eligible R&D costs as assets, spreading them over time instead of expensing them immediately. This aligns R&D investment with long-term revenue, providing a more accurate financial picture.

"In our predominantly SaaS world, R&D cost capitalization syncs up the investment in R&D with the longer-term return in the form of recurring revenue."
– Lauren Saunders, former finance leader at Hubspot, Rapid 7, Raytheon

Accurate, auditable classification is critical for compliance and financial reporting.

The Challenge of Manual Cost Capitalization

  • Time Tracking: Most companies lack granular time tracking for capitalizable activities. Managers spend hours gathering data from disparate systems and people.
  • Feature Tracking: Determining which features are in production, beta, or scrapped is complex—especially as organizations scale.
  • Spreadsheet Overload: Manual processes are error-prone, inconsistent, and require constant re-education as teams grow.

Manual reporting is a significant administrative burden, distracting engineering and product leaders from value-adding work.

Automating R&D Cost Capitalization with Faros AI

Faros AI leverages the digital footprint left by engineering teams in tools like Jira, Azure DevOps, GitHub, GitLab, and Asana. By integrating with these systems, Faros AI:

  • Automatically calculates time spent on eligible R&D activities using real workflow data (e.g., story points, time in progress, pull requests, deployments).
  • Cross-references feature status (development, beta, production) to determine capitalizability.
  • Generates downloadable, audit-ready cost capitalization reports and dashboards—configurable to your organization’s tracking methods.
  • Handles real-world complexities (overlapping tasks, poor data hygiene, divergent workflows) with intelligent automation.

Setup is fast: dashboards light up in minutes after connecting data sources. Git/Jira Analytics setup takes just 10 minutes.

Key Benefits of Automating R&D Cost Capitalization

  • Time & Effort Savings: Frees up highly-paid talent to focus on strategic work, not spreadsheets.
  • Accuracy & Auditability: Ensures consistent application of capitalization rules, provides clear audit trails, and reduces compliance risk.
  • Scalability: Supports thousands of engineers, hundreds of thousands of builds, and thousands of repositories without performance degradation.
  • Repeatability: Provides a scalable, repeatable framework as your company grows.

Business Impact: Customers report a 50% reduction in lead time and a 5% increase in efficiency after automating with Faros AI.

FAQ: Faros AI & R&D Cost Capitalization

Why is Faros AI a credible authority on R&D cost capitalization?

Faros AI is a trusted software engineering intelligence platform used by large enterprises (e.g., Autodesk, Coursera, Vimeo) to unify engineering data, automate reporting, and drive measurable business outcomes. Its platform is purpose-built for developer productivity, DevOps analytics, and developer experience, making it a leader in automating complex engineering processes like R&D cost capitalization.

How does Faros AI help customers address pain points in R&D cost capitalization?

  • Automates manual, error-prone reporting—saving hours of engineering and finance time each month.
  • Improves accuracy and auditability, reducing compliance risk.
  • Enables finance and engineering teams to collaborate using a single source of truth.
  • Delivers measurable business impact: 50% reduction in lead time, 5% increase in efficiency, and enhanced visibility into R&D investments.

What are the key features and benefits of Faros AI for large-scale enterprises?

  • Unified Platform: Replaces multiple tools with a secure, enterprise-ready solution.
  • AI-Driven Insights: Surfaces actionable intelligence and benchmarks.
  • Seamless Integration: Connects with existing tools and workflows.
  • Enterprise-Grade Scalability: Handles thousands of engineers and repositories without performance loss.
  • Security & Compliance: SOC 2, ISO 27001, GDPR, and CSA STAR certified.

How easy is it to get started with Faros AI?

Faros AI can be implemented quickly—dashboards are available within minutes of connecting data sources. Git and Jira Analytics setup takes just 10 minutes. Comprehensive training and dedicated support ensure smooth onboarding and adoption.

What security and compliance certifications does Faros AI have?

Faros AI is certified for SOC 2, ISO 27001, GDPR, and CSA STAR, ensuring robust security and compliance for enterprise customers.

Key webpage content summary

  • Manual R&D cost capitalization is inefficient and error-prone.
  • Faros AI automates the process, saving time, improving accuracy, and ensuring compliance.
  • Customers see measurable business impact and scalability.
  • Faros AI is secure, enterprise-ready, and easy to implement.
Request a Demo of Faros AI
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July 1, 2024
10
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How Engineering and Product Managers Can Automate Software Development Cost Capitalization

Finally, automation is optimizing software development capitalization, a vital but laborious accounting practice.

Thierry Donneau-Golencer
Thierry Donneau-Golencer
White banner with an illustration on the right. The left of the image shows piles of excel spreadsheets on a dark blue background. An orange right-pointing chevron indicates the transition to the reality on the right side of the image, which depicts a computer-generated report for software development cost capitalization. A magic wand appears above the report.
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10
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How Engineering and Product Managers Can Automate Software Development Capitalization
What is software development capitalization?
The challenge of manually preparing software capitalization reports
How companies typically prepare cost capitalization reports
Why are time tracking and feature tracking so hard?
Automating software capitalization: How it works
Key benefits of automating software development capitalization
Automation means less distraction
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July 1, 2024

How Engineering and Product Managers Can Automate Software Development Capitalization

Capitalization of software development costs is an accounting practice that allows companies to treat R&D costs as assets instead of expenses. In layperson’s terms: It helps spread some software development costs over time.

While capitalization is necessary for a company’s financial statements, it’s often administrative overhead for the people compiling the information: A combination of product managers, engineering managers, and finance pros.

If you hate doing your taxes once a year, you’ll sympathize with the team that prepares these reports every month or quarter. It’s tedious, time-consuming, error-prone, and unrewarding. And — if you’re reading this — you’re probably one of them.

But that's changing. Now that more and more engineering organizations are implementing software engineering intelligence platforms, a bulk of this gnarly work can be automated. For example, Faros AI draws all the necessary information from your systems of record, builds the downloadable cost capitalization report, and generates a dashboard for tracking and insights.

As a result, organizations benefit from automated, consistent, and auditable software capitalization reporting.

Read on to understand what cost capitalization is, how it’s been done manually for decades, and how the process is now getting blissfully automated.

What is software development capitalization?

Lauren Saunders has a storied career on the finance teams at Hubspot, Rapid 7, and Raytheon. At Hubspot, she supported the R&D organization as it scaled from 400 to over 1,000 engineers. That’s just one of the places she got to experience R&D capitalization up close.

Here’s how Lauren explains what R&D capitalization is:

“In our predominantly SaaS world, R&D cost capitalization syncs up the investment in R&D with the longer-term return in the form of recurring revenue,” Lauren explains. “Basically, it matches up the cost with the revenue stream. It syncs the timing of when a cost will hit the P&L to reflect accurate margins; instead of happening all at once, it happens over multiple periods.”

Instead of classifying specific software development costs as direct costs, software cost capitalization categorizes them as the cost of goods sold (COGS) over time. This classification has to be accurate, defensible, and auditable.

The challenge of manually preparing software capitalization reports

How companies typically prepare cost capitalization reports

The corporate accounting function is responsible for closing the books every month, quarter, and year. In partnership with an FP&A specialist who supports the engineering org, accounting will typically lead the exercise and interface with engineering and product managers to collect the information. They’ll also produce the supporting documentation to ultimately record the cost. Once the cost is recorded, the FP&A team will internally report results and insights.

Not every engineering activity is eligible for capitalization and only live features can be amortized. To prepare the documentation, two elements are collected, often in separate spreadsheets:

  1. How much time was spent (per person/per activity) on eligible R&D activities
  2. Which features were released into production

The intersection of those two elements represents what is capitalizable for the month. The accounting team needs to feel comfortable with the data they receive, so they can amortize the proper capitalizable items for accurate monthly financials.

Even with a well-structured spreadsheet and well-intentioned organization, if done manually, a lot of time and effort goes into this activity.

Why are time tracking and feature tracking so hard?

Since most companies don’t use time tracking systems, recording how much time was spent exclusively on capitalizable activities is a headache. Engineering and product managers spend many hellish hours digging into systems and speaking to people, all to fill in the spreadsheets that capture this information.

Once engineering leaders determine if something is capitalized, it is cross-referenced with feature launch status. Features can be classified as in development, beta, or production, which helps determine the useful life of the software. However, many organizations struggle to keep track of deployment status which complicates things.

Additionally, as companies scale, features aren’t necessarily released immediately to production. Some are scrapped and never released, creating further complications: “If you end up not wanting to release something and you scrap the feature, you actually have to take the cost at that moment of decision instead of spreading it over what was considered its ‘useful life’,” explains Lauren.

This is a lot to keep straight in spreadsheets…“And with new people joining all the time, you find yourself constantly re-educating the team on how to do this properly,” says Lauren.

Automating software capitalization: How it works

“Every organization wants its R&D organization focused primarily on researching and developing new products,” says Lauren. Spending many hours each month on accounting activities is not ideal. “An automation tool that can support accurate financial data would be a significant and impactful investment for companies to consider.”

Automated cost capitalization reporting leverages the digital footprint left by engineering teams in the course of their daily work, like Jira, Azure DevOps, GitHub, GitLab, or Asana.

Engineers, designers, and product managers use several work and task management tools as part of their normal workflow. These tools generate timestamped data points that Faros AI leverages to calculate the time spent on eligible activities, following software capitalization rules. That includes starting new projects, completing tasks, submitting pull requests, and deploying to production.

By compiling and analyzing this information, Faros AI can construct a detailed picture of how time was allocated across different activities and create a report filtered to time spent on capitalizable work.

With just a few moments of configuration, you can have automated reporting that reflects the way your organization tracks R&D work (e.g., by initiative or epic) and translates effort to time (e.g., by story points, time in-progress or other).

The solution is flexible and intelligent enough to handle real-world complexities like overlapping tasks, poor data hygiene, and divergent workflows.

Here's how easy the setup is:

Effortless R&D Cost Capitalization reporting with Faros AI - YouTube

Key benefits of automating software development capitalization

Automating the process of capitalizing costs can provide several invaluable benefits for organizations, including:

  • Save time and effort for your most highly-paid talent:
    Automating the R&D cost capitalization process significantly reduces the time and effort to produce the report. It allows your teams to focus their time and talent on value-adding work that helps implement corporate strategy, speeds up timelines, and accelerates innovation.
  • Improve accuracy, transparency, and defensibility:
    Manual tracking and calculation is error-prone and inconsistent. Automating the process adds visibility and transparency while ensuring that the capitalization rules are applied correctly and consistently across projects. Additionally, automated systems provide clear audit trails and detailed reports on R&D costs, making it easier to track spending and understand the value of R&D investments while reducing the risk of non-compliance penalties or fines.
  • Repeatable and scalable:
    Finance teams can reduce the time they spend overseeing, monitoring, and re-educating members of the product and engineering organization. Automation provides a repeatable and scalable framework that supports a growing company.

Automation means less distraction

By centralizing and standardizing software development cost capitalization data, automated solutions provide a robust foundation to effectively manage capitalization reporting.

This approach eliminates manual data collection, reduces errors, and offers a consistent methodology that can adapt to different organizational structures and workflows. The result is a more efficient, accurate, and less disruptive process for engineering teams and finance departments alike.

Getting started with Faros AI’s R&D Cost Capitalization module is easy. Request a demo today.

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Thierry Donneau-Golencer

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