Time Tracking for IT and R&D Teams: Project Cost, Chargeback and Capitalization

Time tracking for IT and R&D teams means logging hours against internal projects, phases and work items, so the business can see what each initiative costs. The same records do three jobs: they cost projects, they support chargeback or showback to the departments that use the work, and they show which hours can be capitalized and which must be expensed. This guide covers the cost formula, the difference between chargeback and showback, the capitalization rules, and the time codes that let one log serve all three.

What is IT and R&D time tracking?

IT and R&D time tracking is the practice of recording the hours an internal technical team spends on each project, phase, and task. Unlike client work, these hours are not billed to a customer. They are used to report the real cost of internal initiatives, to allocate that cost to the departments that benefit, and to give finance the evidence it needs for capitalization and R&D tax treatment.

The people logging time are typically developers, solutions architects, business analysts, engineers, and researchers. The people reading the reports are IT managers, PMO leads, finance, and leadership.

Why do internal IT and R&D teams need to track time?

People are usually the highest cost in an internal technical project, and time is the only way to measure that cost by project. Without hours, a project's cost is a guess based on headcount.

Time records answer three separate questions:

1. What did this project cost? Hours multiplied by each person's cost rate give the labour cost of every initiative.
2. Who should pay for it? Hours by project let IT charge back or show back costs to the departments that requested the work.
3. How should finance account for it? Hours by phase show which work can be capitalized as an asset and which must be expensed when it is incurred.

The third question is the one most teams cannot answer from their current data, because capitalization depends on when and on what kind of work the hours were spent, not only on which project.

How do you calculate the cost of an internal IT project?

Multiply each person's hours on the project by their cost rate, then add the results and any direct costs. A cost rate is what an hour of that person's time costs the business: salary plus employer costs, divided by the hours they are available to work in a year.

An illustrative internal ERP upgrade:

Add licences, contractors, or hardware bought for the project to get the total project cost. Keep cost rates in one place, owned by finance, so a change to a rate flows through every project at once.

What is the difference between chargeback and showback?

Chargeback moves a project's cost into the budget of the department that used it. Showback reports the cost by department but keeps it in IT's central budget. The FinOps Foundation puts it this way: chargeback "sends expenses to a product or department P&L," while showback "shows the charges by product or department but keeps the expenses in a centralized budget." It adds that neither is more mature than the other; the choice depends on the organization's accounting policy. (FinOps Foundation, Chargeback & Finance Integration)

Using the example above, if Finance requested 60% of the ERP work and Operations 40%, chargeback would move $21,360 to Finance and $14,240 to Operations. Showback would report the same split while IT keeps the $35,600 in its own budget.

Either way, approve time before the period closes. A charge that changes after a department has seen it is the fastest way to lose trust in the numbers.

Which IT and R&D hours can be capitalized?

Only hours spent building the asset, after the project has been approved and is likely to be completed, can usually be capitalized. Planning, research, training, and maintenance are expensed. The exact rules depend on the accounting framework your organization reports under.

US GAAP is changing. The FASB issued ASU 2025-06 on September 18, 2025. It removes the stage-based model for internal-use software and replaces it with a principles-based framework. It is effective for all entities for annual periods beginning after December 15, 2027, and early adoption is permitted. (Crowe, FASB Revises Internal-Use Software Cost Guidance)

Under IFRS, IAS 38 requires all research-stage spending to be expensed when it is incurred. Development costs are capitalized only if the entity can show the project is technically feasible, it intends to complete and use or sell the asset, it is able to do so, the asset will be useful or has a market, adequate resources exist to finish it, and the cost can be measured reliably. (ACCA, Research and development)

In every framework, the time record is the evidence. In the ERP example, if 100 hours went on planning, 340 on building and testing, and 60 on training after go-live, then at the project's blended rate of $71.20 an hour, roughly $24,208 of the $35,600 is a candidate for capitalization under the current stage model. The other $11,392 is expensed. In practice, use each person's own cost rate rather than a blended one, and let finance make the final call.

How does time tracking support R&D tax treatment?

In the US, the tax treatment of research costs changed in 2025. New Section 174A lets businesses fully deduct domestic research and experimental expenditures in the year they are incurred, for tax years beginning after December 31, 2024. Foreign research costs are still amortized over 15 years under Section 174, so domestic and foreign research must be tracked separately. (Crowe, Domestic R&E Deduction Returns Under Section 174A)

For a time log, that means two things. Research hours need to be identifiable as research, and each person's hours need to show where the work was performed. A location field, set once per person or per entry, covers the second.

Rules differ by country. Treat this section as a reason to structure the data, and confirm the treatment with your tax adviser.

Cost every internal project from the hours your team already logs. Lucen Track turns hours into cost by project, phase, and person, and sends the data to Power BI for finance. The free trial runs for 14 days on the Premium plan, which includes labour costs, monetary budgets, and approvals. No credit card is needed. Start your free trial.

How do you set up time codes for cost, chargeback, and capitalization?

Set up time codes so a single time entry carries every field the three reports need. If a field is missing at the time of logging, it usually cannot be added reliably later.

Agree the phase definitions with finance before the first entry is logged. The date a project moves from planning to build is the date capitalization usually starts, so record that change on the project itself, not only in a status meeting.

What logging rules make IT and R&D time records audit-ready?

Records are audit-ready when they are complete, logged close to when the work happened, and cannot be changed after they have been approved. Four rules cover it:

• Log time daily. Hours reconstructed at the end of the month are estimates, not records.
• Make the key fields required. An entry without a phase or work type cannot be classified later.
• Approve time before each period closes. The approver confirms the project and phase are correct.
• Lock approved entries. Changes after approval should go through a correction, not an edit.

Missing timesheets are the most common gap. ECIT Automate, the IT automation branch of finance and IT services provider ECIT, uses weekly and monthly Lucen Track reports to catch overruns and missing timesheets. Its managing director, Per Lolk, describes Track as "our source of truth for billing data." (ECIT customer story)

How does Lucen Track support IT and R&D time tracking?

Lucen Track is a time tracking tool built for Microsoft 365, so IT and R&D teams log hours in the tools they already use. On its product page, Lucen describes the IT and PMO use case as "Log time against internal projects and programs, and report the real cost to leadership."

For the work in this guide, Track offers:

• Azure DevOps integration. Hours logged against work items show what each sprint and feature costs.
• Microsoft Teams, Outlook, and Planner. Engineers log time in Teams, turn Outlook meetings into suggested entries, and see time on Planner task cards.
• Labour costs, so hours convert to cost by project and person. Included on Premium.
• Tags and phases for work type and capitalization phase.
• Required fields for time entries, so no entry is saved without its classification.
• Approvals and locked time entries, so records do not change after sign-off. Approvals are included on Premium.
• Monetary budgets and alerts to flag an internal project before it overruns. Included on Premium.
• Microsoft Power BI and XLS/CSV exports, so finance can build chargeback and capitalization reports from the same data.
• Microsoft Entra ID single sign-on, for IT teams that manage access centrally.

Check the Track pricing page for the plan that includes each feature you need.

What does Lucen Track cost?

Track's plans are:

For an internal IT or R&D team that needs project cost, approvals and budgets, Premium covers the setup in this guide, and larger departments can move to Enterprise. Start your free 14-day trial of Lucen Track. The trial includes Premium features, and no credit card is needed. Start your free trial.