When is the right time to add another business software platform to your company’s suite of tools?

Introduction

The right software tools make all the difference to your company’s profitability, business resiliency, client experience. Such tools can also help insure the accuracy of your processing and even your company’s compliance with industry best practices and regulatory mandates.

Too often, selecting the right software tool is a matter of chance. And the odds do not favor getting it right! Rather, a comprehensive framework that involves all stakeholders is required, but only if reaching a decision amongst them doesn’t drag out so long that the original conditions for tool selection no longer exist!

1. Engage all the stakeholders

Key contributors to successful software selection include all of the following teams.

1.a The IT Stakeholders

• IT Architecture Team
• CISO Team
• IT Data Team
• IT Operations Team
• IT Design Team
• IT Application development team that will own support of the new platform

1.b The Business Stakeholders

• Business teams accountable for the ROI derived from the investment in the new tool (revenue generation or cost savings or both)
• Business Products Design team

1.c The Corporate Stakeholders

• Legal Team
• Finance Team
• Procurement Team
• Risk Team

2. Provide the stakeholders with a solid business case

2.a Total Cost of Ownership through 2 contract cycles, including:

Cost Factor	Typical Values	Comments
Cost to Purchase	X
Annual License fee	ALF = .1X to .25X
Initial Implementation Cost	IIC = .2x to 4X	A key factor often overlooked and frequently low-balled by a vendor
Ongoing customization Budget	OCB = .1X to 2X	Business stakeholders will be the best judge of how far they want/need to transform the software from its initial state
Ongoing Hosting Costs	OH = .02X to X	On premises versus hosted versus Cloud platform
Ongoing Vendor Costs	OVC	As identified
Hardware Costs	HC = 0 to .75X	On premises versus hosted versus Cloud platform
Business Head Count Costs	BHCC	In most cases, business head count is impacted both up and down. Watch out for need for new, higher value rolls required
IT Head Count Costs	ITHCC	As identified
Software Upgrade Cost	SUC = .4IIC + y(OCB) + n	Where y = the number of years in the contract. At a minimum, a major software version upgrade will cost at least 40% of what it initially cost to implement the software, plus more due to the ongoing customization that was performed during the contract period. The factor n is a wildcard which tries to account for situations in which the vendor so upgrades their platform such that all priori costs cease to be predictive.

You may find that you need to include other factors particular to your situation. For example, your cost model might be shifting offshore to capture labor arbitrage. The above table should be able to get you started however.

3. Name those Accountable for the ROI and actually hold them accountable too

Not every situation is governed solely by an ROI on the investment in a new software product. For example, a new Regulation or entering a new business may be the main driver for the purchase of a new software platform. However, I would argue that even in these situations, evaluating, capturing and holding business leaders accountable for an ROI is an important business discipline to execute.

Let me know what you think!