Understanding Total Cost of Ownership
Understanding Total Cost of Ownership by Jim Howard
Marina Del Rey, CA (December 26, 2001) —
The scenario is all too familiar: With great fanfare and substantial investment, a company commissions a custom content management system - one it believes is not only tailored to its needs today, but is so thoughtfully designed and deployed that the company can envision using it until the end of time. And then reality intrudes. Cosmic Widget Inc., a $100 million integrated manufacturer based in Denver, purchased a custom content management system for its Web site in early 1999. The system, designed expressly to support various internal processes, worked well. It enabled the company to update pages on the fly. Cosmic paid $75,000 for the initial system as part of the site design project. Management was happy. In mid-1999, the company's new line of FiberWidgets was released. Cosmic added two new product areas, but the content management system couldn't accommodate them. Cosmic's IT chief called the development firm, which updated the system for a fee of $10,000. A few months later, Cosmic decided that it wanted to add PDF data sheets to the site. The system couldn't do that either, so Cosmic's own personnel began to add them manually, making changes to the HTML on the live site.
The Expenses Keep on Coming
Concerned with the cost of turning to the original developer, Cosmic hired a freelancer to take care of the PDF project. The freelancer developed a nice system, based on a new language, and also added a custom-developed polling system to the site - for another $10,000. When Cosmic later wanted to make changes to those systems, the company found the price tag too steep. Late in the year, Cosmic was ready to bite the bullet and add a calendar to the site. The IT department initially contacted the development firm, but was bowled over when the developer returned a quote of $50,000. Cosmic Widget decided instead to buy and install a packaged system, for $20,000 plus a 20 percent support contract of $4,000 per year. The company's IT group did the install; getting the system up and running took four months and required a new machine, but the system answered most user needs. While the look and feel differed from what the company was accustomed to, overall Cosmic was satisfied. Over time, the developer and Cosmic's internal staff continued to modify and add to the site.
The Dreaded Redesign
In mid-2000, the company decided to redesign its site. Not long into the process, Cosmic realized that the content management system that had worked so well the first time had been designed specifically for the previous site. When bids came in for the redesign, it became clear that the site wasn't HTML that could be transferred into a new design, but included code for the CMS embedded in pages throughout the site - and that promised to increase the scope of the redesign effort dramatically. The company also found that the old system wouldn't work with the new site without a full re-write. The development firm quoted $150,000 for a new content management system; according to the developer, the site was bigger now and prices had increased accordingly. Cosmic Widget also received competitive bids for various installed products and other custom systems. At that point, the company, frustrated, opted to cancel the redesign because it had become cost-prohibitive. Late in 2000, the Cosmic Widget systems group updated the database and the operating system on the server. The custom content management system suddenly stopped working. The development firm said that it didn't really support the system - the current system wasn't a product and as developers, they weren't responsible for new operating systems or databases. The developer suggested a number of alternatives: returning to the old operating system and database; building a new system; or trying to fix the existing system - for a fee. Cosmic Widget was incensed. The company fired the developer after a two-year relationship, even though the original system worked for two years exactly as specified. In the meantime, the calendar system provider went out of business, and the polling system never worked well. Cosmic quit using both systems and still hasn't replaced them. The company returned to updating PDFs manually.
The Do-It-Yourself Approach
In early 2001, the Cosmic Widget IT group bought a content management product that claimed to be ready to use, "off the shelf." The company purchased new hardware, a new firewall system, a new database server, and rented additional rack space to house everything. Cosmic installed the system and set it up on the newly redesigned Cosmic Widget.com Web site. More than six months were required to complete the redesign with a new content management system running. During that period, the site went stale. Users plainly didn't like what they saw. They complained that the new system was difficult to use. They were compelled to call the IT group for even such basics as adding a new user or fixing an output template. After six months of work, the IT group had spent more than $200,000 on software and hardware, and had dedicated two people to full-time work on the project. Although the new system worked with the new Web site, it actually cost as much to operate and manage as the old system, and didn't really work any better. Total Cost of Ownership - Big and Elusive
As the Cosmic experience illustrates, the total cost of ownership (TCO) for custom systems can be enormous. Worse, TCO is completely unpredictable. And the cost behind the care and feeding of custom systems represents another serious drag on overall business performance. It doesn't have to be this way. Cosmic made some mistakes, had some unrealistic expectations and didn't have access to the software products available today. Fortunately, more capable software products are on the market these days, and custom development is no longer necessary. Outsourcing or software rental is also an increasingly attractive option.
How might Cosmic approach its content management needs today?
The company could start by considering any of a number of excellent solutions (freeware packages, supported packages and outsourced services) that could take care of the polling and calendar functions, and that support modifications and enhancements over time. Many of the top content management systems also now incorporate poll and survey creation and calendaring. In 1999, Cosmic's options were relatively limited in the content management space; today, instead of choosing custom development, Cosmic would be able to select from an array of strong mid-range products, based on a development framework with which its IT group is comfortable. As the Cosmic Web site changes over time, these newer systems - particularly those built to be customized rapidly - can be modified to meet the company's needs. The top tier ASP-based content management systems provide development environments and very strong administrative capabilities. They are also typically quicker to implement and less expensive over time. In choosing a solution or set of solutions for content management, one of the most challenging considerations lies in calculating costs. The total cost of ownership of an outsourced system is generally fixed, with modifications enabled through an administrative system and supported development environment. For internally managed systems, a host of costs - hardware, IT staff, bandwidth, support software, ongoing software licensing fees, and expense of system modification - need to be taken into account. The TCO for custom-built systems can be low so long as no modifications are necessary. Because content management systems almost always have to be able to change over time, custom systems are warranted in very few cases. Changing a custom system to operate on a redesigned Web site is typically impossible without a full rewrite. That's why software rental is so compelling. The Internet is now mature; the industry has crucial standards for connections that enable the various pieces all to work together. Custom software often performs well, but is not designed for change; its useful life thus is short. Packaged installations are like boats - the least expensive thing about owning them is buying them. Increasingly, software rental-based solutions will supplant pricey, inflexible, high-maintenance systems because of their tangible cost and flexibility advantages. They enable business growth rather than inhibiting it.
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