Managing software as an asset is critical for organizations that want to maximize the value of that software. There are a number of different ways that organizations (and individuals within those organizations) look at asset value when it comes to their software. These different viewpoints include: financial, software maintenance and portfolio management.
Those that look at software from the financial side, often the CFO and the accounting team, consider all software purchased from vendors or software that is developed internally to be a financial capital asset that is accrued and depreciated on the organization’s balance sheet. In today’s world, where more and more software is “rented,” the subscription fees are posted as expenses on the balance sheet. How a software asset is treated in the financial realm may significantly impact an organization’s decision to purchase software outright or license it from a vendor.
The CIO often looks at software from the software maintenance angle. The more software assets an organization has under one roof, the more there is to maintain. And, the more complex each software package is, the more likely there will be more problems that need to be fixed, significantly driving up maintenance costs. Much like the financial perspective, the software maintenance view comes down to dollars and cents. The more maintenance a software asset requires, the less value it will have. We know that every software solution is going to require some maintenance, but it is important to ensure that a software asset isn’t going to require so much maintenance that it becomes a negative value.
Portfolio management is the third perspective where software value is looked at on an individual basis and also collectively with the organization’s other software applications. Software is purchased (or rented) because it is going to provide benefits for the organization (i.e. productivity improvements, enhance customer service); however, in some situations, when that software is integrated with other applications, the value can increase exponentially. For example, when data can easily flow from one software solution to the next (i.e. an HR solution to a payroll application), it saves valuable time for staff and reduces the potential for errors. Therefore, when assessing the value of the various software assets, it is likely that the sum of the whole exceeds the sum of the parts.
All three viewpoints are valid and need to be considered when making software investment decisions and determining the actual value of a software asset for an organization.
DCG President & CEO