The total cost of a major software project eg replacing HR, CRM or Accounting software, is typically two or three (or more) times than the cost of the software itself. Most such projects are planned on this basis. However, the real cost problems - are the unexpected hidden costs. Unforeseen costs can start with additional software vendor costs and continue throughout the project implementation. One solution is to identify the total cost of ownership, not just the software, as clearly as you can prior to acquisition. If you establish and compare the total costs associated with each software package for 1 year and 5 years from the date of acquisition, you will have a much better idea of what to expect. Another solution is to look out for potential hidden costs and either include them or a contingency, and then manage them as best as possible at the time they occur. To help, here is a (not exhaustive) list of such potential hidden costs:

LOOK OUT FOR THESE HIDDEN SOFTWARE COSTS:

The software application licences - the modules you really need, rather than what you would like to have (or be talked into), what the prices are based on - number of concurrent system users, number of employees or records, number of transactions or a mix of these? What are the different price bands? How it will work out for your organisation? Software rentals – similar to above. Bespoke software developments or features you need, that require additional programming by the vendor. Other software licences you might also need – just to run the software application eg new or additional database software licences. Hardware upgrades eg new or upgraded servers, pc’s. Network upgrades. Training costs – number of days and day rate. What is the typical amount of training required for the average customer and specifically, what would be required for your organisation? What is the cost of setting up a training facility on your site? Or to use the vendor’s facilities? Vendor support services fees eg for interface development, report writing, implementation consultancy assistance. Other support services eg contractors, temporary staff (plus their agency fees) to assist with the implementation. Annual licence fees charged? If so, are they in addition to, or instead of annual maintenance charges? Annual maintenance charges – for all software, database and hardware you will be acquiring. Are there different levels of support at different price bands? How do you move from one band to another? What are the annual charges based on – the price you pay or list (higher) prices? Plus what will they increase by each year – a fixed amount or %, or by some other criteria? Upgrade charges – are there additional charges (over and above the annual maintenance) for major software upgrades? Travel and accommodation or out-of-pocket costs, incurred staff on location, or by vendor consultants providing training / consultancy on your site(s)? System usage costs or fees – are these charged and if so what are the price bands? On premise or cloud based storage costs for your data. Backup and disaster recovery costs.

ASK THE QUESTIONS:

What other costs will we need to incur (now and in the future) to implement and run this software? Do the software vendors have a list of charges, price lists or will they provide details? Do the prices quoted - include or exclude sales taxes / VAT, or other taxes? What currency are the prices quoted in? If list prices are in US$ and the vendor is selling to you in a local currency - what exchange rate are they using? Would it be more beneficial to acquire in the listed price currency? What are the payment terms? Do they accept stage payments? You may end up with a long list of extra software project costs that previously were unforeseen. However, forewarned is forearmed and you have the opportunity to plan for and negotiate them. For more IT project proposal information visit: Reasons for changing software / Project scope checklist / IT project proposal / Proposal format / Basic ROI calculation / ROI calculator and tips for maximising systems project ROI / Hidden costs of acquiring software / Project budget template and tips for improving IT software budgets / Proposal evaluation sheet
Hidden Costs of Acquiring Software A list of cost items to check on software projects

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The total cost of a major software project eg replacing HR, CRM or Accounting software, is typically two or three (or more) times than the cost of the software itself. Most such projects are planned on this basis. However, the real cost problems - are the unexpected hidden costs. Unforeseen costs can start with additional software vendor costs and continue throughout the project implementation. One solution is to identify the total cost of ownership, not just the software, as clearly as you can prior to acquisition. If you establish and compare the total costs associated with each software package for 1 year and 5 years from the date of acquisition, you will have a much better idea of what to expect. Another solution is to look out for potential hidden costs and either include them or a contingency, and then manage them as best as possible at the time they occur. To help, here is a (not exhaustive) list of such potential hidden costs:

LOOK OUT FOR THESE HIDDEN

SOFTWARE COSTS:

The software application licences - the modules you really need, rather than what you would like to have (or be talked into), what the prices are based on - number of concurrent system users, number of employees or records, number of transactions or a mix of these? What are the different price bands? How it will work out for your organisation? Software rentals – similar to above. Bespoke software developments or features you need, that require additional programming by the vendor. Other software licences you might also need – just to run the software application eg new or additional database software licences. Hardware upgrades eg new or upgraded servers, pc’s. Network upgrades. Training costs – number of days and day rate. What is the typical amount of training required for the average customer and specifically, what would be required for your organisation? What is the cost of setting up a training facility on your site? Or to use the vendor’s facilities? Vendor support services fees eg for interface development, report writing, implementation consultancy assistance. Other support services eg contractors, temporary staff (plus their agency fees) to assist with the implementation. Annual licence fees charged? If so, are they in addition to, or instead of annual maintenance charges? Annual maintenance charges – for all software, database and hardware you will be acquiring. Are there different levels of support at different price bands? How do you move from one band to another? What are the annual charges based on – the price you pay or list (higher) prices? Plus what will they increase by each year – a fixed amount or %, or by some other criteria? Upgrade charges – are there additional charges (over and above the annual maintenance) for major software upgrades? Travel and accommodation or out-of-pocket costs, incurred staff on location, or by vendor consultants providing training / consultancy on your site(s)? System usage costs or fees – are these charged and if so what are the price bands? On premise or cloud based storage costs for your data. Backup and disaster recovery costs.

ASK THE QUESTIONS:

What other costs will we need to incur (now and in the future) to implement and run this software? Do the software vendors have a list of charges, price lists or will they provide details? Do the prices quoted - include or exclude sales taxes / VAT, or other taxes? What currency are the prices quoted in? If list prices are in US$ and the vendor is selling to you in a local currency - what exchange rate are they using? Would it be more beneficial to acquire in the listed price currency? What are the payment terms? Do they accept stage payments? You may end up with a long list of extra software project costs that previously were unforeseen. However, forewarned is forearmed and you have the opportunity to plan for and negotiate them. For more IT project proposal information visit: Reasons for changing software / Project scope checklist / IT project proposal / Proposal format / Basic ROI calculation / ROI calculator and tips for maximising systems project ROI / Hidden costs of acquiring software / Project budget template and tips for improving IT software budgets / Proposal evaluation sheet
Hidden Costs of Acquiring Software A list of cost items to check on software projects
© 2020 Axia Consulting Ltd
All rights reserved. Contact Us

Axia Consulting