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The Hidden Secrets about Software Implementation Costs

August 11, 2016
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Software implementations mean different things to different people in the organization. There are many reasons why an organization decides to upgrade their system. Many instances there are clear signs that you have outgrown your IT system. So the process starts easy enough. We send out a request for information to various vendors and you get a rough pricing sheet. Of courses the software prices are subject to negotiation and they often include a rough order of magnitude for your hardware expense. This leads to a discussion within the leadership about cost of ownership and how long the implementation would take. This is when the conversation becomes a little more complicated.

From a budgeting perspective there are various factors that have to be considered in order to properly plan all your expenses. The actual cost of the software being just a small component. In order to capture the complete picture you have to account for the following:

  • interface build and modifications
  • vendor implementation costs
  • training costs
  • internal and external resources
  • EDI services
  • software maintenance
  • software acquisition costs
  • hardware hosting or purchase
  • revenue risk and revenue protection

There are many factors that go into the budget assessment for each of these categories. It is also a task better suited for a CFO than a CIO. However the reality is they both have to work in concert in order to develop a comprehensive plan that will give them a clear picture of the cost to the organization.

This graph shows how the costs of a typical large system install is factored into the overall cost of the project. Two of the items often neglected are the internal and external resource costs. The cost of your employees while they’re working on the implementation effort is something that needs to be identified. You may have other costs for working on your old system during the implementation and during A/R run down for example. The other part is revenue risk and revenue protection. If you’re upgrading your financial systems, you might experience a decrease in revenue as your claim volume is reduced. This is typical of any new system, combined with a learning curve. So this definitely should be factored into the equation and plan for accordingly.

Remember that upgrading your system means different things to different people. If your leadership team has not experienced a large system upgrade, then you may need to ask for help. Keep in mind that your implementation budget will be closely tied to implementation goals and implementation decisions. Therefore, having a strong governance with a clear vision of the project up front will help you to closely align your budget to reality.

We keep reading about organizations that have gone over there implementation budget. Horror stories really about cost overruns, senior leadership having to leave, and how certain vendors cost more than others. But at the end of the day it is really incumbent on the organizational leadership to provide a clear budget and a clear vision for any major project. You can never assume that everybody understands the impact of an IT system upgrade.