Your Investment in Enterprise Software – Guidelines to CIOs and CFOs
The overall investment associated with implementing and maintaining a suite of enterprise software products could be significant. A 1:4 ratio between product investment and the corresponding investment over time in related services is not uncommon. In other words, an initial $2M in licensing a suite of enterprise software products might easily balloon to $10M in total life-cycle costs (initial investment in perpetual license plus the ongoing investment in associated services).
I offer the following rule-of-a-thumb guidelines to assessing whether the terms quoted by a vendor for an enterprise software suite of products are right:
- Standard maintenance costs: Insist on a 1:1 ratio between license and standard maintenance over a 5 year period. If standard maintenance costs over this period exceed the corresponding license costs, chances are: A) the vendor is quite greedy; or, B) the vendor’s software accrued a non-negligible amount of technical debt. Ask the vendor to quantify the technical debt in monetary terms. See Technical Debt on Your Balance Sheet for an example how to conduct such quantification.
- Premium customer support costs: Certain premium customer support services could be quite appropriate for your business parameters. However, various “premium services” could actually address deficits or defects in the enterprise software products you license. If the technical debt figure is high, the vendor you are considering might not be able to afford the software he has developed. Under such circumstances, “premium services” could simply be a vehicle the vendor uses to recoup his investment in software development.
- Professional services costs: Something is wrong if the costs of professional services exceed licensing cost. Either the suite of products you are considering is not a good fit for your business parameters or the initiative you are aspiring to implement through the software is overly ambitious.
To summarize, the grand total of license fees, customer support fees and professional services fees over a 5 year period should not be higher than 3X license fees. Something is out of balance if you are staring at a 4X or 5X ratio for the software you are considering.
One final point: please do not forget to add End-of-Life costs to the economic calculus. Successful enterprise software initiatives can be very sticky.