What is SOP 98-1?

SOP 98-1 describes the allocation of project expenses for internal software development or purchase to either expense or capital categories. Organizations can capitalize on the development of internal software by managing the project with Tracker Suite for Lotus Notes / Domino, TrackerOffice for Microsoft Outlook / Exchange, or TrackerSuite.Net for the Web.

SOP 98-1 defines three phases to projects, a preliminary phase of assessment and planning, the development phase of actual design (including installation and testing), and finally the post implementation and operation phase, where the internal software is deployed and adopted through the organization. While internal and external costs accrued during the first and third stages must be expensed against current operations, SOP 98-1 allows the costs involved in the development phase to be capitalized. For example, during the preliminary stage of an internal software development project there is typically research of the technology to build the software. Any costs incurred in this activity must be expensed, as they are not a direct cost of the software’s development.

However, once the project moves past the preliminary stage into development, costs may be capitalized - but ONLY external direct costs of materials and services utilized in developing or purchasing the software can be capitalized, not costs such as overhead. For example, if the organization contracts outside programmers to develop the project, it may capitalize the payroll and some payroll-related costs for those programmers, but not their living expenses (such as housing, or vehicle rentals).

If instead of developing the software, the organization chooses to purchase it instead, they can only capitalize the actual software. Other costs, including data conversion routines, training, maintenance, unspecified upgrades and re-engineering should be expensed as they are incurred.

Complying with SOP 98-1 offers organizations a means to improve the way they manage their IT, to clarify its value and capabilities on an ongoing basis, and encourage a review of existing software assets and their performance. In this regard it often dovetails with an organization’s Sarbanes Oxley / Purchase to Pay initiatives, providing justification for procuring software or development services for internal projects.

Using Tracker for Compliance

Tracker Suite’s project, time, expense and purchase databases simplify the organization’s ability to comply with SOP 98-1. For example, an organization wishing to leverage SOP 98-1 uses Project Tracker to create a new internal project. Using Project Tracker, each phase of the project is clearly defined and tracked.

Tracker’s applications for time reporting (Time Tracker), expense tracking (Expense Tracker) and purchasing (Purchase Tracker) are tied to the Project Tracker database. This integration improves the accuracy of internal project billing as well as simplifying its accounting.

SOP 98-1 does not allow general and administrative costs (or overhead expenses) to be included in the capitalized cost of the internal project, a restriction that can make time reporting problematic. However, Time Tracker allows users to define billable hours not only by project and task, but by activity and descriptions as well, a function that simplifies tracking applicable SOP 98-1 items.

The data from these various modules is pushed to the Tracker Data Warehouse, a Web based reporting engine that receives data from the Tracker modules as well as legacy HR and Accounting databases. The Tracker Data Warehouse serves as a single point of access for real-time, organization-wide business intelligence, and can provide immediate reports on the progress and total costs, both capitalized and incurred expense, of internal software projects.

The Tracker Data Warehouse can also be leveraged to measure the efficiency of internal software assets against the performance of business process they support. For example, an organization could track the time spent on activities or tasks by employees utilizing a software application as part of their work, to determine if there is room for improvement. If a new or updated application is judged necessary, then the Tracker Data Warehouse can also provide post-implementation reports to determine the results.