Spreading the cost: capitalising documentation costs
Sometimes the cost of an essential documentation project can make a big hole in the current year's operating budget. But putting the project off until the next year's budget cycle will mean doing without the productivity benefits and cost savings that flow from having good reference and performance support information in place. Delays can also mean losing access to subject matter experts and their knowledge while it is fresh in their minds.
The solution to this problem is to treat the cost of documentation as an investment rather than an operating expense. By 'capitalising' costs instead of 'expensing' them, documentation development costs become an asset in the company's books. This asset is then progressively written-off in equal amounts over a number of years, spreading the impact on profits.
In fact, this approach more accurately reflects the true nature of documentation. It represents an investment in 'knowledge capital', which is used by the organisation to generate income for as long as it remains accurate and current. Here are some broad guidelines for estimating the life expectancies of various types of documentation.
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Policies |
These typically apply for a cycle of strategic review, which would normally be from 4 to 7 years |
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Procedures and performance support information |
These normally apply for the cycle of tactical or program activity in the range of 2 to 4 years |
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Product manuals |
Applicable for the expected years until the product's next major re-design |
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User manuals for software |
Applicable for the expected years until the software's next major upgrade |
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System manuals for software |
Applicable for the expected life of the software |
Since 1998 the tax department has insisted that software development costs be capitalised and then written-off over the life of the software. No specific ruling has been given for documentation development but the same principles apply. In practice, accountants tend to recommend a rule-of-thumb using an approximate cut-off cost of $50,000. If the total documentation development cost is less than $50,000 it is all written off as an expense in the same financial year. If the total cost is over $50,000 then it is capitalised and written off over a number of years.
The $50,000 cut-off is only a rough guide because, in practice, accountants can exercise fairly wide discretion. Remember, the total cost includes your own staff's time as well as external consulting costs.
So make sure you check with your Accounting Department first before you postpone that documentation work because of a lack of budget.
This article may be reproduced only with the permission of HCi (email HCi ). Copyright HCi, 2001-2.
