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Hello! I would like to share with you some thoughts that I have retrieved from software implementation projects over the years. As standard software has matured, I think that also implementation projects must mature, hand in hand. So here we go:
An enterprise software implementation project is no monkey business. Lots of money is at stake and we all know that anything that can go wrong will… So, what can be done? Luckily, a lot. But some things should be watched more carefully. For instance, bespoke software modifications. Assuming that the normal implementation steps and measures are taken, it leaves us with one area that is more significant than all the others together: Software modifications, “mods”. There is no doubt that the amount of modifications affects the project cost. Is it a big deal?
Unfortunately, yes. It’s a big deal…
It’s not just the T&M cost you pay upfront. You also have to pay extra maintenance for the mods. Every year, at a price worth of around 25% of the initial development cost. Accordingly, you have paid for the mod twice after 5 years. And so on.
Is that all? I am afraid not. Do you want to upgrade to the latest version? Yes, the day will come. And then, you have to pay for the cost of carrying all the mods to the new version. It may cost you as much as you paid in the first place, depending on changes in the new software version, and the design of the mods. It may be so expensive that you refrain from upgrading. You are stuck.
So, you tell your software vendor that you stay with the 10 year old version. The vendor now tells you that it is ok, but your version is de-supported so you have to pay a 10% upwards adjustment on top of standard maintenance. Every year, 10% extra. Your standard maintenance cost will almost double in 7 years.
See the simple calculation below. It looks at a 10 year total cost of ownership, as well as the recurring cost year 11. Some assumptions are 20/25 % maintenance fee for standard/modified software respectively. We also count with an annual 10% increase of standard maintenance from year 5. You are running an old, obsolete version because you did not upgrade due to the amount of mods.
| With Mods | No Mods | |
| Initial software license | $ 200,000 | $ 200,000 |
| Software Modifications | $ 100,000 | - |
| Standard maintenance year 1 | $ 40,000 | $ 40,000 |
| Standard maintenance year 2-10 | $ 360,000 | $ 360,000 |
| Modifications maintenance year 1 | $ 25,000 | - |
| Modifications maintenance year 2-10 | $ 225,000 | - |
| Increased standard maintenance year 5-10 | $ 67,897 | - |
| Total Cost of Ownership, 10 years | $ 1017,897 | $ 600,000 |
| Recurring cost, year 11 | $ 102,949 | $ 40,000 |
An extra bonus of the No Mods scenario is that an upgrade is easy, so you are likely to be on a late version with more features and functions.
Let’s stop there for now, but don’t miss part two of this story in my next blog post!
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A critical note. I appreciate your blog about modification, updates etc. I think for a vendor it is not easy to find a good balance between making new modifications and standard functionality.
But as a customer I see a lot of modifications as a bad signal from my software vendor. And as you mentioned, the more modifications we have, the bigger the update problems will be. I do not only talk about the softwarecosts, but also about the energy and effort a customer has to add, to update to a newer version.
Should there not be a more tight fit between customer needs/wishes (…modifications) and the releaseplanning of the CDC software?
René, I appreciate your comment and fully agree. Not all customer requirements will be possible to adopt in standard software, but I think a lot can be accomplished when there is a will from both of the vendor and the customer to discuss these matters throughout the solution lifecycle. Surely, both sides have to be open-minded and the software vendor must have a joint development process in place. Examples of WMS features adopted in standard software based on your company’s requirements are click-once ASN receipts, Assemply-to-Stock and black-box management. I will elaborate further on this subject in Part Two, which will posted around three weeks from today.