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How to assess the real costs of your next software project

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By: Jacob Stoller
2012-10-01

It is ironic that construction companies that meticulously track their job expenditures often manage their own IT projects with little idea of the costs they are incurring. As a result, they frequently decide on acquisitions where the costs significantly outweigh the benefits of the software being implemented. The difficulty is that vendor proposals tell only part of the story.

“There are hidden factors that a lot of people don’t think about,” says Sheldon Needle, president of CTS, a Rockville, Md.-based firm that advises companies on software selection.

These hidden factors are, for the most part, internal; and because of their complexity, difficult to quantify. However, by understanding where the major costs are, organizations can better determine whether a software investment is realistic.

Here are the five areas where significant costs are most frequently overlooked:

1. IT labour: Time spent by internal IT personnel represents the largest IT cost for many companies. Usually this is considered too complex to quantify, and consequently, many companies ignore it. Andy Woyzbun, senior analyst for London, Ont.-based Info-Tech Research, recommends companies establish a standard hourly rate for IT based on the average salary. “A standard rate will give you a much better sense of costs than simply ignoring it,” says Woyzbun.

2. End-user labour: Supporting a software application is not just IT’s problem. Administrators, estimators, project managers and other employees will often have to commit additional time and effort in order to realize the benefits of a new software package.

“To be able to run a software system requires a lot of discipline,” says Needle. “You have to input the data on a timely basis—and accurately, so that people can rely on it. That’s not something you can take for granted.”

As with IT labour, establishing a rule of thumb for what an employee’s time costs the company and applying that on an approximate basis is not a perfect method, but it’s better than simply ignoring that cost.

3. Hardware: New software can require significant upgrades to servers, storage, networks, and in some cases, wireless infrastructure. Upgrades often lead to chain reactions where other systems have to be upgraded to maintain compatibility, and this can cause maintenance and support costs to spiral. Even when significant upgrades are not required, Woyzbun suggests companies should attach a cost for the used capacity of existing systems based on their existing operating costs.

“No project is free in terms of machine capacity and storage,” says Woyzbun. “You should have a cost of equipment capacity that is the same regardless of whether you have to buy new equipment or not.”

4. Additional IT capabilities: Having to support a new class of technology may involve acquiring additional skill sets in the IT organization. For example, implementing an application that uses a MS SQL database might require hiring a network administrator. Skills to support the latest technologies are often in high demand, and can be expensive to acquire. Also, adding new technology to the company network makes troubleshooting and user support more difficult.

5. Change management: People frequently forget that the business process improvements that software helps realize, require people to change the way they work. Adequate training for not just IT people, but each employee who works with the software, is a bare minimum requirement. The cost of the training and employee’s time need to be considered as part of a project’s cost. Training, however, may only be the tip of the iceberg when it comes to the real cost of changing a business process; particularly when it involves core activities such as: bidding on contracts, billing customers, or tracking project costs. If the software is tracking additional information that was ignored in the past, it might be necessary to instill a culture change; where people have to adopt the discipline to watch and track information on a regular basis.

“When all that’s going on, people’s time is going to be absorbed,” says Needle. “They are not going to have time to do their regular jobs to the same degree as before. That’s a soft cost, but it’s a real cost all the same.”

Determining the real costs of a software implementation is not an exact science—there will always be gray areas and a significant amount of uncertainty. However, if construction companies consider their costs in the above areas, using rough estimates where necessary, they will be 

way ahead of the pack.

Jacob Stoller is principal of Toronto-based consultancy Stoller Strategies. Send comments to editor@on-sitemag.com.
















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