Selecting Systems 12: Price / Cost / Value

Price: what you pay

Cost: what you expend

Value: what you get in return

Any system selection absolutely must have a cost consideration. However, there is a difference between cost and price, and to that end also a difference again between these two and value.

For system selection, the cost can be broken down into several elements. These cover the process of getting to a decision, delivering and deploying a new system and the ongoing cost post implementation.

Hardware and/or hosting

• Purchasing software as a service (SaaS) incurs an annual fee that includes access to the software platform, hosting and maintenance. Typically, it may include only basic support for bug-fixes and minor issues. Where the software is purchased outright, or for an annual (not SaaS) fee, hosting will be required either in-house or with a third-party provider. SaaS has the advantage that it offers a simple and predictable annual fee and covers eventualities such as disaster recovery/business continuity and upgrades. Comparing SaaS to licence fee would show a significant discount but does not consider other factors.

Software licence

• Software can be bought through multiple types of contracts, whether annual, outright or term purchase, as a service or simply as a licensable item. Additional user licences may be required (named users or simultaneous users). There may also be the need to purchase additional software to support the application or to run with the application.

Implementation

• The cost of implementation brings with it the service fees (and expenses) of the implementation partner. Companies typically ignore the internal cost associated with a finance transformation project or, where there is a process, it is often only the charges transferred in from other departments (IT, security etc.) and not the eventual owner of the solution which may see this treated as BAU.

Training

• The cost of training is usually measured as the time and fees associated with classroom or similar courses. But training costs should also include refresher training and non-formal learning, certainly early on in a new implementation.

Process and change impact

• As companies embrace change there may be a need for fewer people to undertake the work, or there may be a need to redeploy people away from their current roles. This should be factored into the upfront cost and then offset against the benefits gained as a result of such a project.

Support and maintenance

• Beyond basic software support, there should be a need to provide system support in an ongoing capacity, that may or may not include training.

Selection cost

• Very often the cost of running the process of system selection is not factored in. Where there are central teams running procurement programmes, they may either be seen as a central cost or may charge their time and input to respective departments. However, for smaller organisations perhaps, or those directly involved that are outside of procurement, very often the time and effort required to run the process of system selection is not considered, even though it should be.

The cost of doing nothing

• Occasionally projects may fail before they start. System selection may throw up many options, leaving the company unable to decide or wanting to retain the current status quo. The cost of doing nothing is still a cost, not just for the wasted time but also for the impact of not making progress.

Opportunity costs

• Companies may be impacted by other projects. For example, deferring a decision because other projects have taken a priority or the cost of change elsewhere meaning there is insufficient time or budget.
• Companies that delay decisions or opt to do nothing may or may not factor in their own costs. What they invariably fail to factor in is the loss of goodwill from potential bidders and suppliers and even reputational impact if this becomes a frequent occurrence.

Conclusion

While considerable weighting may be given to cost, the price should be one element of any system selection but not the most important. Understanding the difference between the price of various components (software, implementation fees etc.) should not be confused with the total cost of a project.

VantagePoint can work with customers to understand the total cost of a project and the return on (total) investment (ROI) for any finance transformation, whether as part of the transformation project or as an advisory-led separate project.

Selecting Systems for Growth 12/14

• overview - https://www.dhirubhai.net/pulse/selecting-finance-systems-support-your-companys-growth-john-fuggles-0x5oe/
• part 1 - https://www.dhirubhai.net/pulse/selecting-systems-1-stakeholder-buy-in-john-fuggles-63w1e/
• part 2 - https://www.dhirubhai.net/pulse/selecting-systems-2-considering-people-john-fuggles-ign6e/
• part 3 - https://www.dhirubhai.net/pulse/selecting-systems-3-training-enablement-john-fuggles-w6rbc/
• part 4 - https://www.dhirubhai.net/pulse/selecting-systems-4-impact-business-usual-john-fuggles-b5yoe/
• part 5 - https://www.dhirubhai.net/pulse/selecting-systems-5-process-alignment-john-fuggles-zm8he/
• part 6 - https://www.dhirubhai.net/article/edit/7249463530045812736/
• part7 - https://www.dhirubhai.net/pulse/selecting-systems-7-need-integration-john-fuggles-748vc/
• part 8 - https://www.dhirubhai.net/pulse/selecting-systems-8-future-fit-john-fuggles-ph5pe
• part 9 - https://www.dhirubhai.net/pulse/selecting-systems-9-developing-implementing-plan-john-fuggles-ovkoe/
• part 10 - https://www.dhirubhai.net/pulse/selecting-systems-10-finding-right-implementation-partner-fuggles-h9vue/
• part 11 - https://www.dhirubhai.net/pulse/selecting-systems-11-ongoing-support-john-fuggles-bvrhe/