Wednesday, January 19, 2011

How to Consider All Costs in Database Procurement

Because most charities will only make a significant investment in a new database system every few years, they don't always consider how they need to compare the costs of such purchases. And it is vital that when comparing costs you don't just look at the cost of the software - you must look at far more than that. One useful approach to help with that is to use the Total Cost of Ownership (TCO) cost model. This post provides a basic introduction to this.

Why is TCO Important?
Firstly, you must remember that the new database software is only one element within all your potential costs for a new system, and secondly, that it is not just the initial cost of the system which you need to cost – you should create a TCO for, say, 5 years.

This therefore involves the comparatively simple task of comparing ‘direct’ costs such as software, the supplier’s implementation services, additional hardware etc, but optionally you could also incorporate the more difficult/complex task of additional cost factors such as internal IT HR support costs, electricity, de-commissioning etc. In practise, most charities will find that even if they just compare the more direct costs, that will still help significantly, and it will probably only be the larger organisations or charities who implement  large CRM systems who will incorporate the additional cost factors.

Costs you Should Consider
Below, is a list of ‘direct’ costs which you should definitely be able to calculate when comparing database systems (although different suppliers may of course call them by different terms). Although I would expect most/many to be needed within most CRM projects, you may not need them all or you may of course need other factors not listed here. Use it as an example and basic model – break it down in the best way for you so you can compare and contrast the costs. By doing this, you can compare different suppliers’ costs like-for-like.

The Database Application Software (and associated software)
•    Core software / application software (including the number of concurrent users/seats)
•    Additional modules
•    Customisation / Bespoke programming
•    Reporting software
•    Web software / web services

•    Functional Specification / Analysis & Design
•    Installation
•    System configuration / System build
•    Implementation
•    System Integration – including synchronisation with your web site if appropriate
•    Supplier’s Project Management
•    User Acceptance Testing support
•    Training (SuperUser training, end-user training, training materials)
•    Go-live support
•    Data Conversion (estimate or allowance)

Annual Support (Maintenance)
•    Application software Annual cost
•    Additional software annual costs
•    Hosting costs (if applicable)

Third Party software
•    E.g. PAF software, banking software, new Office software needed

Underlying Database software
•    E.g. SQL Server
•    Client Access Licenses

Hardware and associated (operating) software
•    Server(s)
•    Clients
•    Communication links
You might also need/want to add annual maintenance costs for any such hardware and infrastructure.

How to use Your Calculations
Put them all in a spreadsheet, each cost as a row and the different suppliers/options as columns. After doing this, you will have two “broad” costs – a first year cost (initial implementation) and annual costs for each year thereafter. Thus, you can get a 5 year TCO; and thus you may find that what seems to be cheaper/more expensive in the first year may be more expensive/cheaper over the 5 year period!

More Comprehensive TCO
In terms of additional cost factors which help create TCO at a more comprehensive level, you might include the following. Some of these will be the same cost regardless of whichever supplier you select, or they might break-down into a few groups (e.g. hosted vs non-hosted solutions).

•    Purchasing process
•    Operating Costs
•    Project Management
•    Internal IT staff
•    Internal Database/Marketing staff
•    Back-filling for project staff
•    Management time
•    Electricity and air-conditioning requirements
•    Floor space
•    Outage costs
•    Back-up/Recovery cost
•    Risk cost
•    Opportunity cost
•    Additional hardware such as UPS, racks

And a Final Note on Costs
Cost is of course a significant factor in the decision of any procurement for a charity, but please bear in mind it is not the be-all-and-end-all! You need to weigh it up against all the other important factors of any database implementation from functionality and usability through to the supplier itself and how it meets all your needs.

1 comment:

Becky Carr said...

A very informative article, lots of useful and information here that is relevant for organisations across all sectors, not just charities. Thanks.