Every jurisdiction has software applications it needs to do its day-to-day operations. Most of these do very similar operations as other jurisdictions, but most jurisdictions get convinced by internal and external people that their needs are so unique that they must have a unique application just for them. This mindset is what costs the jurisdiction lots of money and that is passed on to us tax payers.
Every application that is purchased from a vendor has costs associated with that purchase and use. The actual initial purchase price is normally the lowest portion of the overall cost of a software application and its implementation. To get a new application on-line, the jurisdiction must complete all the following segments:
- Review and selection
- Negotiation with vendor for price, features, support, maintenance, and other issues
- Purchasing the software
- Implementation planning
- Data conversion planning
- Training planning
- Initial implementation for testing
- Testing and review of implementation, iterative process that often repeats several times
- Creation of custom reporting
- Integration to other internal systems and processes
- Conversion of live data
- Training of employees
- Training of external customers
- Marketing of changes to external customers
- Training of internal support staff
As you can see, the actual purchase price is only one of many costs that are incurred when implementing a new system. So if a jurisdiction has to change vendors every 5-10 years because vendors go out of business, don't properly support the product, don't create needed features, or any number of other reasons, the costs are incurred yet again.
The implementation and internal staff costs for a typical system are normally several times the cost of the software. So if the software costs $50,000 to purchase, it is not unusual for the related other costs to run 5 times that cost when all totaled up. This means a $50,000 piece of software winds up cost the jurisdiction $300,000 or more in actual dollars and labor costs.
In addition to these start up costs, almost every application has annual costs for the following items:
- Annual vendor maintenance and support (typically 15-30% of purchase price)
- Negotiation with vendor on desired enhancements
- Integration to changes in other internal systems
- Implementation of minor upgrades
- Retraining on new features
These costs often will total up to a cost upwards of 50% of the software price on an annual basis. Most of those actual dollars go to the annual maintenance and integration to other systems the jurisdiction does not have control over.
So if we look at a software application that costs $50,000 to buy the software, the true numbers for a 5 year life cycle are much higher. With implementation of approximately $300,000 and annual costs of as much as $25, 000 that $50,000 product has actually cost $475,000 to operate for 5 years. That means the jurisdiction has to budget a cost of $95,000 a year to keep that product running.
Now if we multiply that times say 10 applications used throughout the jurisdiction, the annual cost comes to $950,000 a year. This is by no means an inflated number and for many jurisdictions it is extremely low.
So what is driving this kind of cycle with local jurisdictions? The next segment in this series will look at why most jurisdictions are locked into this cycle and the underlying factors that need review.
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