This is a common question every person trying to purchase new technology in their organisation gets asked “Where is the business case?”. To answer this question or prepare the business case you will need to know a few things. In this series I will talk about the two important aspects of financial analysis of the technology purchase decision path – costs and financial benefits.
Part 1: What does it cost?
In years of experience implementing various technologies including HR technologies, a common question that I get asked over and over again is “what will it really cost”? It is a very valid question too. More than ever before, CXO’s are under tremendous pressure to reduce cost while increasing efficiencies.
So to put the Total Cost of Ownership or more commonly referred to as “TCO” in perspective below is a breakdown of costs that are applicable to most technology purchases:
- Legal and Procurement cost: this may come as a surprise, but if you intend to purchase technology and do not have an internal procurement and legal department to support the process, you may need to spend money on getting legal and procurement help. Although most vendors will have standard terms and conditions that you can choose to sign-up to, you may want to read these and negotiate these to favor your organisation. But if you’re happy to not delve in detail, be prepared to agree to the vendors terms and conditions.
- Software cost: this is the most common and well known category of cost. You want to purchase technology or rights to use it, you pay a fee for it. Usually this is an annual fee charged for every user especially if you’re buying cloud software. It is important to note that some vendors will also charge variable fees depending on the type of user for example if you’re purchasing end user read only type licenses they might be cheaper than super administrator licenses. Another important point to note is that vendors may give you a discounted price if you sign up for a 3 to 5 or more years term. It’s like a mobile phone plan, if you purchase a no contract or pay as you go type plan you will get charged a higher fee than if you sign up to a contract.
- 3rd party software cost: this a sub-category of software cost. If the software you’re intending to purchase requires “plugins” or additional 3rd party tools you will need to pay a fee for that too. A great example of a 3rd party software is job posting aggregators. When you purchase recruitment modules/software, you may require another 3rd party tool to post your job advertisements to multiple sites at the same time. Another example is you may want to integrate your new software with an existing internal system. To transport that data between the systems and perhaps do some calculations or format changes you may need an integration tool which is an additional fee over and above standard software.
- Implementation cost: this is another commonly known cost. Unlike purchase of your games from iTunes or Play Store, most office software (even cloud software) requires some amount of configuration. It is usually not as easy as turn it on and you’re ready although if you are using start-up tools which are low cost option, you may not require any configuration. If your software provider only provides software and expects you to “turn it on yourself” or allows consulting companies to resell their products you’re likely to be charged a fee for this service. This cost is associated with taking the software platform, and designing your company’s required processes related to that functionality, configuring it, testing it and implementing it. This cost could comprise of a number of things like functional consultants, technical consultants, business analysis of processes, project management, testers, data cleansing, standardizing, formatting, and so on. It is also important to note that any 3rd party software will also most likely attract an implementation or set-up fee.
- Internal implementation cost: often companies fail to calculate the cost of internal resources or back-fill resources required to implement the project. It is not uncommon for companies to require subject matter experts, testers, technical resources, project managers, etc. depending on the size and scale of the project. Don’t forget to set aside money for these resources if required especially if you are going to back-fill your internal resources while they work on the project.
- Integration cost: now I previously mentioned cost of integration tools but you have to also factor in the cost of actually designing, configuring/building, testing and deploying the integration. This is very similar to the costs of implementation, but this time you need IT type resources. The implementation partner will usually first conduct a scoping workshop with you to understand what integrations you want to build, what kind of data you want to connect, how (often) do you want the integrated systems to talk. Based on this, they will estimate the cost of integration. It is important to note that if you’re integrating two different vendor products you’re likely going to pay both vendors for investigating and facilitating the design, build, test and deployment of integration.
- Support cost: this is another obvious one hopefully. Who will support your new system, related integration, and any 3rd party software or tool? Support can be categorized in two simple parts – immediate post-go live/warranty support and Business as Usual support (BAU). Most software providers will include standard BAU support in the license fees. However, it is important to check what support is available to super users, functional users and technical users immediately post-implementation. Once you start playing with your new toys, you will certainly have a few questions!!! The post go-live support is trickier. Some implementation partners will charge you consulting fees to provide additional TLC for your users immediately after go-live. It is also important to note that where you have integrations, you will need support for all vendor products that are integrated which will increase your operational cost. In some instances companies may choose to train someone internally to provide integration support but upskilling will also cost dollars including updating those skills every time the software goes through an upgrade. An incidental support cost is the increase in the number of licenses for any helpdesk/ ticketing system required to log support calls/emails internally. This will enable tracking and analysis of the kind of questions or issues experienced by users due to the introduction of change.
- Change management cost: hopefully if you are implementing technology you are aware of the need for change management. This is not just the cost of training your users, although that is an important part of it, it is not the full cost of change. The cost of change should include costs of a change resource who is able to assess your organisation’s people, process and technology and impacts of introducing change on all those areas; costs related to identifying and preparing change champions for the role; rewards for adopting change; and of course preparation and delivery of training materials. A sub-cost that is a very valuable change driver is a business analyst who will assist with identifying and creating/updating process documentation as necessary due to introduction of technology and any changes to roles.
Part 2 will shine light on the financial benefits from implementing technology and some tools that are used to calculate return on technology investment.