The first stage of development described in ASC 350-40-25 is the preliminary project stage.

Definition from ASC Master Glossary

Preliminary Project Stage: When a computer software project is in the preliminary project stage, entities will likely do the following:

  1. Make strategic decisions to allocate resources between alternative projects at a given point in time. For example, should programmers develop a new payroll system or direct their efforts toward correcting existing problems in an operating payroll system?
  2. Determine the performance requirements (that is, what it is that they need the software to do) and systems requirements for the computer software project it has proposed to undertake.
  3. Invite vendors to perform demonstrations of how their software will fulfill an entity’s needs.
  4. Explore alternative means of achieving specified performance requirements. For example, should an entity make or buy the software? Should the software run on a mainframe or a client server system?
  5. Determine that the technology needed to achieve performance requirements exists.
  6. Select a vendor if an entity chooses to obtain software.
  7. Select a consultant to assist in the development or installation of the software.

The following activities are generally part of the preliminary project stage:
  • Conceptual formulation of ideas and alternatives
  • Evaluation of alternatives
  • Determination of existence of needed technology
  • Final selection of alternatives

These costs are generally incurred in the early stages of a project when the reporting entity is exploring its technological needs and exploring various alternatives.
Internal and external costs incurred during the preliminary project stage should be expensed as incurred.
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