Yes, the software projects are too expensive to implement. Especially, enterprise (ERP/CRM) and packaged (COTS) software.
Let us see why?
Look, the two major costs for software implementations are:
- Software Vendors cost
- Professional services (Consulting, Development, Project Management, Software configuration)
- Software licenses
- Hire Project resources
- Customer side Project Manager
- Backfill existing roles
- Training and Change Managers
Now, let us unpack each of them:
Software Vendor/Integrator Cost
Here is the question!
Why the software vendor's professional services are too expensive?
The fact is that other than the market competition, vendors have no motivation to reduce implementation costs. For example, here is a common scenario:
During presales, the vendor Sales team determines your Enterprise software needs. Note that the Salesperson’s commissions are based on the sale of software licenses and professional services. So they make more money when they sell a larger volume of licenses and services.
The Sales teams incentive is not based on the success of the project. Instead, it is how much money they can take out of your pocket. The only thing that they need to worry about is competition. Their prices should not be too much higher than the competition.
Note the above point, and let us move on.
The Sale process is complete. The anchor is set. The initial expectation of cost and timeline is set with you. Note that if the project is not fixed-price, the price is not final yet. During the project, there can be changes to the scope. Hence, the cost is likely to go up.
Software vendors follow a very lousy approach to estimation. The technical resources provide base estimates for the development. Management often adds a layer of overheads and contingency.
Sounds normal? Here is the question!
What is the incentive for the Technical resource to deliver a cost-effective solution? Why will they find efficient ways to develop a solution more cost-effectively?
The Professional services team is incentivised on margins and billability. So, efficiency is perhaps the last thing they may think about. Hence, you receive high estimates with little appreciation for the efficiency. You end up paying more.
Hire Project Resources
You may need to hire contractors for Client-side tasks like business analysis, testing, change management. Now, ask yourself the incentive for them to complete the project as soon as possible. Why will they intend to end the project earlier than their contract finishes? Why would they do not like their contract to extend?
Changing gears, to uncover more on why software projects are too expensive!
The Product Owner or Subject Matter Experts often expect a sleek solution. They are not directly responsible for the project budget. So, they expect the software to do everything with a button click. This expectation works in favour of the vendor. It means additional work effort, which turns out to be more cost for you and extra revenue for the vendor.
Summary – Software projects are too expensive
In summary, our commercial engagement does not support improving efficiency and minimising cost. They are based on hourly billing, license sales and time-bound contracts. It discourages resources from thinking out of the box and delivering cleaver solutions with minimum possible cost.
It is time to think about our foundations of commercial engagements. The engagements should promote innovation and efficiency. The question is what the future engagement models should look like?
