5-13-16

14D — May 13 - 26, 2016 — NJAA CONFERENCE & EXPO — M id A tlantic

Real Estate Journal

www.marejournal.com

2016 NJAA C onference & E xpo

hen it comes to gain- ing access ibi l i ty and a comprehen- By Michael Mullin, Integrated Business Systems Considering Cloud Property Management/ Accounting? Start by Calculating anticipated ROI W ment/accounting software can be acquired and used.

pated 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 property management/accounting soft- ware was on the existing IT infrastructure. The cloud has changed that. Today, the avail- ability of cloud-based ERP solutions, Software-as-a-Ser- vice (SaaS) configurations and

Cloud Service Providers offer a variety of options for property management/accounting soft- ware 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 hard- ware, additional servers and/or telecommunications equipment may be needed. This impacts the ROI calculation. Typi- cally, 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 additional depreciation in terms of reduced taxes or improved cash flow should be captured as a benefit in the ROI calculation. 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 have dramatically changed the way in which property manage-

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 orga- nization’s needs, some custom- ization may still be necessary. The good news is that a portion of the associated costs can be capitalized and depreciated. That should be included in the ROI calculation. The bad news is that perhaps no single property manage- ment/accounting software im- plementation cost component is more underestimated than software customization. More- over, software customizations can grow almost exponentially, adding to implementation 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/ accounting software customiza- tion can help to avoid major headaches. 4. Project Management and Implementation Cost While the all-up costs of property management/account- ing software implementation cannot be capitalized as part of the acquisition cost, many can be identified and included 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 data conversion costs should also be identified, estimated and included as part of the implementation cost. continued on page 17D

sive view of a multifamily or commercial real estate or- ganization’s processes, the bene f i t s o f cloud-based p r o p e r t y management/

Michael Mullin

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

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