1-27-17

16B — January 27, 2017 - February 9, 2017 — Property Management — Owners, Developers & Managers — M id A tlantic

Real Estate Journal

www.marejournal.com

P roperty M anagement

By Michael Mullin, Integrated Business Systems Calculating the ROI of Cloud Lease Management/Accounting

sive view of a multifamily or commer- cial real es- tate organi- zation’s pro- cesses, the bene f i t s o f cloud-based p r o p e r t y W

hen it comes to gain- ing accessibility and a comprehen-

have dramatically changed the way in which property man- agement/accounting software can be acquired and used. Recently proposed guide- lines by the Financial Account- ing Standards Board (FASB) provide the definition that if a fee paid under a SaaS ar- rangement includes a software license element, that cost ele- ment must be identified and treated as any other software license; that is, capitalized and depreciated over its useful life. If the SaaS arrangement does not identify a software license element, then the SaaS fee is treated as service contract and charged to operating expenses. The difference in treatment of the software acquisition cost in an on-premise arrangement or a SaaS arrangement can have a significant impact on the calculation of ROI. 3. Software Customization Cost Even when a property man- agement/accounting software product is a good fit for an organization’s needs, some customizationmay still be nec- essary. The good news is that a portion of the associated costs can be capitalized and depreci- ated. That should be included in the ROI calculation. The bad news is that per- haps no single property man- agement/accounting software implementation cost compo- nent is more underestimated than software customization. Moreover, software custom- izations can grow almost ex- ponentially, adding to imple- mentation time and delaying the realization of the benefits expected from the investment. Having a precise estimate of the scope, time and cost of a property management/ac- counting software customiza- tion can help to avoid major headaches. 4. Project Management and Implementation Cost While the all-up costs of property management/ac- counting software implemen- tation cannot be capitalized as part of the acquisition cost, many can be identified and in- cluded in the investment piece of the ROI calculation. The cost of external consult- ing or project management services should be included, plus the expense of training and of temp services that fill personnel gaps during imple- mentation. Initial training and continued on page 18B

on the anticipated return on investment. Following are five key ROI- related points that should figure into your pre-planning – if you want to get the green light on your new cloud-based system. 1. Hardware Acquisition and/or Upgrade Traditionally, the only in- stallation option for prop- erty management/accounting software was on the existing IT infrastructure. The cloud has changed that. Today, the availability of cloud-based ERP solutions, Software-as-a-

Service (SaaS) configurations and Cloud Service Providers offer a variety of options for property management/ac- counting software acquisition, deployment and usage. IT teams can choose among the solutions that are best for their specific real estate busi- ness. If an on-premises instal- lation is selected, an upgrade or acquisition of computer hardware, additional servers and/or telecommunications equipment may be needed. This impacts the ROI calcu- lation. Typically, computer hardware is purchased and

recorded on the balance sheet as an asset, with depreciation calculated over its useful life. The positive impact of the ad- ditional depreciation in terms of reduced taxes or improved cash flow should be captured as a benefit in the ROI calcu- lation. 2. Software Acquisition In the past, software and hardware purchases were ac- counted for in exactly the same way, in that the purchase of a software license was capital- ized and depreciated over its useful life. However, SaaS subscription configurations

Michael Mullin

management/accounting are obvious. But how can the time and the cost of implementation be justified? You can make a strong case for change based

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