Planning Phase : Budgeting Capital Projects
In general, if the total estimated costs for the project (including hardware, software, labor, etc.) are $250,000 or more, the project must be reviewed by ISC management to determine if it qualifies as a capital project. If it qualifies, it must then go through the capital planning process.
Capital Planning Process
The capital planning process requires additional paperwork and various approvals depending on the estimated cost. If only a single approval is needed, the process can usually be completed in 4 to 6 weeks. Additional time will be required if additional approvals are needed. See the Capital Process webpage for the approvals required based upon the amount requested.
- Obtain the required planning documents from the FRES website.
- The Project Managers (technical and functional) should complete an initial draft of these documents.
- The draft documents should be submitted to the ISC project owner/sponsor and to ISC's Exec Director of Finance & Planning for review. Include additional supporting material (e.g., info from software vendor) as needed to help validate costs.
- Incorporate any required changes and then submit the revised drafts to all of the project owners and sponsors for their review and signatures where needed.
- Send finalized documents to ISC's Executive Director of Finance & Planning. That office will be responsible for presenting the materials and shepherding the project through the capital planning process. The Project Managers will be consulted if additional clarification is needed and will be informed when the process has been completed.
In addition to standard reporting of project budget/actuals, capital projects require additional special reporting. For accounting purposes, all effort expended on a capital project must be identified as either "expensed" or "capitalized". For a software project, this distinction is made based on the nature of the activity and when in the project life cycle the expenditure occurs. As a general guideline, appropriation of capital and expense is mapped to the PMAP Phase or Activity level as follows:
PMAP Phase Capital Cost Activity Treatment of Cost:
Treatment of Cost:
ALL Project Administration & Communication X Definition Planning1 X Planning Planning X Execution Design X Development2 X Conversion3 X Training4 X Rollout: implementation effort & turnover X Rollout: all other activities X Operations X Close-out Project Administration & Communication X
1. This Capital Cost Activity applies to both the Planning and the Definition phases of PMAP
2. Includes unit, system, integration, performance, and user acceptance testing
3. Includes data clean-up during conversion, e.g., reconciling data, scrubbing files, etc.
4. This is end-user training, not project team member training
Note: Once a system is implemented, all effort expended for ongoing operations is to be Expensed.
Reporting is done with a one-month lag to "true up" at year end (July and August - 1st quarter; September, October and November - 2nd quarter; December, January and February - 3rd quarter; March, April, May and June - 4th quarter) and within five days of month-end. A sample report layout is included at the end of this document.
Treatment of Labor Costs for Functional Team Members
Functional team member efforts on a capital project must be included in the capital/expense reports. This is done in one of two ways as described below. This methodology must be established early in the project.
(1) The functional team can elect to keep time records and supply level of effort by activity. For example, if a particular team member spent 20% of their time on a particular project activity and that activity was determined to be capitalizable, they would report $x dollars worth of effort against that activity based on % of effort times the person's salary (including E.B.).
(2) Calculate cost as estimated effort based on percent of effort spent by the technical team. For example, if during a particular quarter, the technical team spent 20% of their time on activity a, 30% on activity b, and 50% on activity c. These same percentages could be applied to the level of effort spent by functional team members. So, if a functional team member spent 20% of their time on the project during that quarter, 20% of their salary and EB is apportioned to project activities according to the 20%-30%-50% allocation spent by the technical team.
Quarterly Report for Capital Projects
PMAP Phases Treatment of Costs Salary EBs Other Related Costs TOTAL Project Administration & Communications Expensed $0 $0 $0 $0 Sub-Total $0 $0 $0 $0 Project Planning & Definition Expensed $0 $0 $0 $0 Determine requirements of system Expensed $0 $0 $0 $0 Explore and decide alternative options Expensed $0 $0 $0 $0 Select vendor if purchasing Expensed $0 $0 $0 $0 Select consulting services if used Expensed $0 $0 $0 $0 Team software training Expensed $0 $0 $0 $0 Sub-Total $0 $0 $0 $0 Design & Development Capitalized $0 $0 $0 $0 Design & write software interfaces & code Capitalized $0 $0 $0 $0 Install to company software Capitalized $0 $0 $0 $0 Hardware Purchase Capitalized $0 $0 $0 $0 Software Purchase Capitalized $0 $0 $0 $0 Testing includes use of system to convert data to new system Capitalized $0 $0 $0 $0 Conversion includes conversion of data to new system Expensed $0 $0 $0 $0 Data clean-up during conversion (i.e. reconciling data, scrubbing files Expensed $0 $0 $0 $0 Sub-Total $0 $0 $0 $0 Rollout Implementation Effort & Turnover Capitalized $0 $0 $0 $0 End User Training Expensed $0 $0 $0 $0 Subtotal $0 $0 $0 $0 Operation Maintenance of installed base Expensed $0 $0 $0 $0 Infrastructure Support (SEO) Expensed $0 $0 $0 $0 Sub-Total $0 $0 $0 $0
Sub-Total Capitalized Expenditures
$0 $0 $0 $0
Sub-Total Expensed Expenditures
$0 $0 $0 $0
$0 $0 $0 $0