The costs for maintaining and supporting your business software may be enough to justify a move to a new application. Many older products are kept on life support by the vendor but they are not receiving significant research and development investment in new features putting a burden on the user to make those investments in customizations and integration to fill out the gaps.
Further, the costs for maintenance and support of a business system go well beyond the simple contract costs for contracts with the vendor or your support agency. Rather, they also include the cost (or a portion of the cost) of internal IT resources and other users who are called upon to apply updates, troubleshoot issues, or re-enter lost data. Consider for a moment a modest 10% cost savings in lost labor by switching to a system that requires less maintenance and support. If you’re paying an IT resource $100,000 annually then you’re saving at least $10,000 and likely a lot more because there are certainly efficiencies to be gained by other employees and users as well.
One of the major costs for maintaining software is directly related to upgrades – especially upgrades that include customizations. We know this because it’s something we do all the time for our customers. Let’s take a step back for a moment – there’s a time and place for customizations but there’s also a right and wrong way to customize software.
A minor update to your business software without modifications can take a little as an hour (or less in some circumstances). Most annual upgrades take a few hours to a day since it’s best practice to upgrade a separate test environment before proceeding on your live system. Major upgrades typically come every 5 to 10 years and reflect a major shift in technology or functionality from the publisher. These may require much more investment in time or money to upgrade to the latest release and in some cases, could mean that you’re re-implementing specific components of the software from scratch.
Costs to upgrade moderately or heavily customized applications will be dramatically higher as the company that performed the customizations (or your internally modified code) should not only be upgraded but also tested thoroughly prior to the live upgrade. Upgrades for customizations we’ve performed through the years for moderately modified systems have averaged about $5,000 to $10,000 for a major upgrade. For heavily modified systems we’ve seen costs upwards of $20,000 for a major upgrade. As a general rule, the cost to maintain customizations are approximately 20% to 30% of the original project cost for each upgrade. As such, a customization that cost $10,000 will cost about $2,000 to $3,000 to maintain for each major upgrade.
It should be relatively easy to identify upgrade costs if you’re using an outside firm to manage upgrades or if you’re recording your time against upgrades in a project system. Either way, you should definitely understand the maintenance costs associated with on-going service to your business systems.
Companies that switch from premise-based systems to hosted applications may see a significant decrease in maintenance and support costs. There is inherently a large investment in upgrades that require staff or outsource resources to install and test new releases and to ensure that custom code is compatible with the latest changes made by the software vendor. Conversely, most hosted business applications do not require installation. Rather, the vendor applies the updates automatically and support costs are minimal since they are typically included in the annual subscription and support is much easier because the vendor (with permission) has direct access to your application and database without having to rely on your staff to setup a connection, to share their screens during a support session, or to upload a database to the vendor’s support department for troubleshooting.When’s the right time to replace your software to take advantage of the next technology shift? Read more.