No pennies from heaven: controlling technology costs

GEORGE BAILEY: You don’t happen to have eight thousand bucks on you?

CLARENCE: Oh, no, no. We don’t use money in heaven.

GEORGE BAILEY: Oh, that’s right. I keep forgetting.

Comes in pretty handy down here, bub.

IT’S A WONDERFUL LIFE

By Randy Davis (rdavis@egisticsinc.com)

While lost on Clarence the angel, the need for capital is obvious “down here.” It you are not raising capital, you are preserving it. Whatever is preserved can help manage cash flow or can be used for other purposes. Cost control is one means of preserving capital.

To my way of thinking “cost control” requires at least the following three things:

• Keeping total cost of ownership as low as possible (including maintenance and upgrades)
• Paying for something only once if possible
• Keeping costs predictable yet variable based on current factors

It is difficult if not impossible to achieve 2 and 3 above with traditional software/hardware or do-it-yourself cost models. Hardware and software require on-going maintenance, upgrade and replacement costs. Although maintenance costs may be predictable, they are in fact a perpetual payment protecting the use of hardware and software. Upgrades and replacement costs are not entirely predictable partly because there are simply too many external factors (end of life, advances in technology, merger/acquisition or divestiture, etc.) controlling the timing of their expenditure. As things stand now, technology approaches obsolescence every three years.

(If you don't think this is a hot -- even emotional -- issue, see my blog below, "Putting the kibosh on the soaring software maintenance and upgrade costs.")

As an example of cost requirements, here are the findings of a Global Concepts study on the cost breakdown of an in-house digital archive:

• Explicit base costs (such as servers, communications, disk storage, long-term storage, software, maintenance) are only half the total cost 
• Staffing adds another 40% on top of the base costs 
• Replication (disaster recovery/business continuity) requires an additional 36% above base costs 
• Implementation and Development adds another 24% to base costs

Once you have added all your costs together for a secure and reliable in-house archive, the total cost percentages break down as follows:

Rather than a solution that requires fixed and sunk costs, what would be helpful is a solution with an entirely predictable “pay once” fee structure. A “pay once” fee structure should be the simplest, most predictable and controllable fee structure you can get from any of your vendors – partly because of what is avoided, namely on-going costs for users, hardware, software, and maintenance.

The critical difference between using such a fee-based solution and any other cost structure, is that while all other cost structures require on-going, perpetual costs to keep things going, “pay once” does not. You avoid paying – every day for the life of the solution – for the privilege of using that solution. More importantly, you don't pay for excess capacity that either is waiting to accommodate future requirements or becomes unused because of a contraction in business.

I'm certainly not naive enough to think that a "pay once" fee structure is applicable to all, or even most, hardware, software or services. However, it appears that more and more businesses are demanding such a choice.

What is your experience with fee-based solutions?