Cost-cutting continues to dominate the agenda for Operations leaders. It’s therefore important to make sure that the data management, reconciliation or automation software you’re using falls into the former category and not the latter.
We explored some of the costs of inefficient software in our article on the true expense of supposedly ‘free’ recon tools. But even if you have paid for your on-premise system – do you really know how much it’s costing you?
Answering that question is difficult.
Calculating the total cost of ownership (TCO) for on-premise systems is easier said than done, because many of the costs are indirect, hidden, or part of the finance allocation process.
Licenses, maintenance and hardware are just the tip – there’s a lot more lurking below the surface. Today, we’re going to help you uncover them all, so you can build a transparent picture of the cost of managing data.
Here’s what else you need to factor into your calculations.
James Maxfield
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Chief Product Officer at Duco.
Unhelpful upgrades
With a cloud computing platform you effortlessly move from version to version to access new features and performance improvements. But software upgrades and patches are the only way of delivering innovation in an on-premise world – and they cost a lot of money. They are often mandatory and short notice; shorter, at least, than the time it would take you to shop around for an alternate system.
You often have no choice but to pay to move to the new version (we’ll explore why sticking with what you’ve got is anything but cost-effective later). But it may not bring any additional features and benefits that you need. It may introduce capabilities outside of your use cases, for instance, or perhaps support for a new asset class that you don’t trade.
One client told us that they recently finished upgrading their ten-year old on-premise system to the latest version. It took them three years and an estimated $5-$10m and they got no value or functional benefit out of it.
Another client – a smaller firm – budgets $1m every year for upgrades to their on-premise system.
I know from my own experience how costly and time consuming these types of migrations can be – absorbing focus that could be better spent elsewhere
Those costs go beyond just the licensing costs for the new system. Changing from one software version to another often means your IT team has to completely rebuild all your processes. Then they and the users have to test them to ensure they still work correctly and none of your integrations have been broken by the upgrade.
Again, it’s worth pointing out that you may not see any benefits from being on the new system.
This is change-the-bank money that you’re having to spend, but it’s not delivering any change. It’s the cost of business-as-usual in an on-premise world.
End-of-life – and beyond
But what do you do when you either can’t afford to upgrade, or rightly refuse to do so because of the unnecessary cost? In that situation, your software ends up being unsupported.
The vendor may offer you a premium support package, or you have to hire in extra IT resources just to keep the system working. You’ve just traded the cost of upgrading for the higher cost of keeping your existing software running.
By this point you have a zombie system – dead as far as the vendor is concerned, and with no spark of innovation left. It shambles along, doing as much of the job as it can manage, while you run around after it, picking up all the bits that have fallen off.
Are you factoring in the cost of life support for sunset systems into your on-premise TCO?
Inagility
The slow and laborious patch management and upgrade cycle means that innovation is a sluggish process in an on-premise world. Time-to-market for change can stretch to months or even years. Firms rely on their IT teams to install software updates, rebuild processes, release them into production environments, and so on.
This slow time-to-value makes Operations very inagile. This is an acute problem in today’s world. Regulatory change, for instance, is relentless and happening on multiple fronts. How many risks is this introducing to the business? How many opportunities are missed? These are all costs that must be considered.
There is a way around this for Operations teams, but it’s one that just introduces more cost and risk into the business…
Endless manual work
On-premise reconciliation systems exist to help you automate your data. But they often have the opposite effect. The lack of agility explored above forces Ops teams to resort to solving problems manually.
There’s often an army of ‘Human APIs’ surrounding on-premise systems – people whose job it is to manually plug automation gaps. They perform tasks such as:
Extracting data from unstructured formats like emails and PDFs
Keying data into systems in the correct schema
Copying data into a spreadsheet to reconcile
Manually matching (often thousands of) items where the system hasn’t spotted the connection
All this means that a lot of your resources in Operations are invested into low-value work. Your data experts are handling tedious and repetitive tasks instead of performing valuable activities such as root cause analysis, fixing data at source, or providing strategic insights for the business.
And that’s to say nothing of the cost of operational risk that manual work introduces to the business, which can result in direct costs such as regulatory fines or errors leading to trading losses.
Conclusion
The upfront license fees for on-premise software are just the start of a long tail of costs that snake their way through your operations. Your IT team is responsible not only for hardware and maintenance , but often for actually operating the system.
This cost only grows if the system is sunset and requires life support. Upgrading is costly and usually mandatory – regardless of how much value, if any, you get out of it. Long change management processes cost you in agility and slow time-to-value. Hundreds or thousands of workers are required to fill the functionality gaps, introducing risk to your business.
These systems are usually well-entrenched in your architecture, making them difficult to remove. But that’s in a world where you’re replacing one on-premise tool with another. Replatforming to an agile cloud platform is an entirely different affair; gradual, measured and low-risk.
We’ve listed the best IT asset management software .
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