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Advanced KPIs reflecting unit’s financial health; KPIs impacting public companies' financial statements

Capitalization Rate

The percentage of total development time that is capitalized as opposed to expensed. This is crucial for understanding how much of the development cost is considered an investment. More about development time capitalization in https://wmdemo.atlassian.net/wiki/spaces/TC

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titleImprovement Strategies for Amortization schedule

1. Feature Enhancement: Add new features that align with emerging user preferences and trends, such as AI-driven analytics or real-time translation services for products.

2. Security Updates: Regularly update security protocols and encryption methods for products

3. User Experience (UX) Improvements: Conduct usability studies to identify areas for improvement in the user interface of their cloud-based dashboard and other customer-facing tools.

4. Integration Capabilities: Develop plugins or APIs that allow products to integrate more seamlessly with popular solutions from 3rd party vendors (e.g. in Enterprise software - with CRM, ERP, Accounting software)

5. Performance Optimization: Regularly update the backend algorithms and data processing methods to speed up services.

6. Scalability Features: Add features that allow for easy scaling of services, such as auto-scaling capabilities or tiered pricing models based on usage.

Self-sustainability of Development Department

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Financial metric that gauges the ability of a software development department to support its operations, growth, and innovation through effective financial management and resource utilization. It's an indicator of how well the department can generate value and maintain its functions without requiring additional financial support.
Target example: total revenue from software equals at least double of total FTEs' salaries + bonuses

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titleComponents of Metric

  1. Cost Efficiency: The ability to minimize unnecessary expenses while maintaining quality and productivity.

  2. Budget Adherence: The degree to which the department sticks to its allocated budget while achieving its goals.

  3. Capital Investment Returns: The returns generated from investments in tools, technologies, and training.

  4. Revenue Contribution: The direct and indirect revenue generated by the department's projects and innovations.

  5. Resource Optimization: Effective allocation and utilization of financial resources.

To quantify the "Self-sustainability of the Development Department" from a financial perspective, a composite index can be created, combining several relevant financial metrics. Here's a formula that incorporates the key components above:

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titleSelf-sustainability Index (SSI) Formula
image-20240105-063648.png

Where:

  1. Revenue Contribution: The total revenue generated by the department through its projects and innovations.

  2. Operational Costs: The total costs incurred by the department, including salaries, tools, technology, and other resources.

  3. Total Department Budget: The total budget allocated to the department for the period.

  4. Cost Efficiency Factor (CEF): Calculated as the ratio of actual costs to planned costs. A value greater than 1 indicates cost savings, while less than 1 indicates overspending.

image-20240105-063828.png

  1. Budget Adherence Factor (BAF): Measures how closely the department sticks to its budget. It's calculated as the inverse of the absolute percentage difference between the actual and planned budget.

image-20240105-064012.png

  1. ROI Factor (ROIF): The return on investment for capital expenditures such as technology, tools, and training. It's calculated as the ratio of net returns from investments to the cost of investments.

image-20240105-064120.png

Interpretation:

  • SSI > 1: Indicates a high level of self-sustainability. The department is generating more value than it costs and is efficiently using its budget.

  • SSI ≈ 1: Indicates that the department is breaking even in terms of self-sustainability. It's covering its costs and is relatively efficient.

  • SSI < 1: Indicates a low level of self-sustainability. The department may be overspending, underperforming in revenue generation, or not adhering well to its budget.

Business Performance

Gross Margins

Recurring Margins

Service Margins Mix

Cash Liquidity

Free cash flow

Cash coverage months up-front

Operating cash flow margins

Cash flow from operations