Does the Software License Cost Matter?

Over on ZD Net, Michael Krigsman, a fellow Enterprise Irregular, posted a blog a couple of weeks back on whether companies should even look at the cost of a license when calculating the expenses and returns when implementing a package. In it, Michael argues that "implementation costs are a major variable in the ROI equation ... [and] service expenses are often unpredictable." In addition, "non-license costs almost always represent a substantially larger expense than the initial license." In fact, even a deal where an initial license is free could in fact be a bad business decision in the end. Why? Because an "initial license fee as a percentage of total cost of ownership will decline [over time]. Such considerations as training, conversion, maintenance and support, and suitability to your business are where most dollars will eventually be spent."

In a number of organizations that I have spoken to recently, procurement is increasingly gaining influence over IT spend -- often in final negotiations and even in upfront vendor selection and preliminary negotiations. Given this, just as companies sourcing direct materials from abroad need to factor in the non-unit cost decisions into a total cost equation, procurement should also take the lead and quantifying the non-license costs of software implementations as well. After all, it's those hidden costs which often can make or break expected returns.

Jason Busch

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