Case Study > Operationalize > Capital Expenditure in Product

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The Problem

The CFO of our customer wanted to capture the costs of engineering new products and product maintenance. When investors evaluate the profitability and valuation of SaaS product companies, two factors come into cognizance: Annualized Recurring Revenue and EBITDA. Without enforcing the engineering crew to adopt a very arduous time-keeping process, our customer wanted a financial model that leveraged productivity data directly from JIRA to ensure the model could stand up to rigorous auditing practices. They wanted the model to capture operating expenses (maintenance costs) and capital expenditure(new products and capabilities investment) from productivity data in Jira.

The Solution

Vitessence's toolkit consists of a financial model that connects to Jira and uses raw data points like velocity, user story points, team allocation, bug story points, and FTE costs. Using this data model, engineering leaders can quickly report cap ex and op ex costs by computing "cost per story point" for one Scrum (or Kanban) team. The model calculates capital costs for not only new features but also maintenance costs by the individual product team. This model addresses the needs of finance teams but also lays a great foundation for calculating the ROI and NPV of a portfolio.

The Result

Our customer adopted the financial model from the Vitessence toolkit to cap ex costs very accurately. Since the amortized component of the cap ex is reported below the line on a P&L statement, the EBITDA calculation was accurate. Moreover, this model passed the scrutiny of external financial auditors to validate its accuracy.