The Real Cost of Software

Date: September 9, 2009

A quick analysis

Software costs money. This cost is pretty visible, you get an invoice from your software vendor depending on the model; one off license costs, annual support agreements, annual subscriptions, upgrades etc. It’s even fairly simple to track some associated costs of your new software, like the server hardware required to run the software and the server software licensing costs. Beyond this however, it gets a little cloudy when trying to piece together all the associated costs of departmental software applications. No matter how small you think an implementation will be you will always incur costs when maintaining a platform for software.

Okay, let’s look at an example. Before we start it’s important to understand the main assumptions made so the numbers below make sense. The example is based on the following assumptions;

  • The application is a departmental application requiring a live production system, a failover system and access to a test system for doing user acceptance testing with new versions etc.
  • The application will be deployed on physical server hardware in a single data center site.
  • A major release upgrade will be taken and deployed every 18 months.

There are additional assumptions made on hardware costs, hardware maintenance and internal management costs. Details of these costs are given below the example.

Cost example

As you can see, the above figures do not include the purchase cost of the software in the first place. These costs represent the additional costs incurred when maintaining software applications in-house. They are real costs and are very easily blurred into the day to day costs of running a business. This need not be the case – these are not costs of running a business, these are costs that have been chosen during the decision to run an application internally versus hosting with an external provider. Many of these costs can be eliminated and replaced with lower external hosting costs simply by switching to a hosted platform rather than an in-house system.
On this example above, switching to a StatPro hosted service would save over 50% on the annual costs of maintaining an in-house system.

Read: New Insights for Asset Managers: How Technology Can Drive the Most Effective Middle Offices


Notes on costs

  • Based on the annual lease cost of three physical 2 CPU quad core servers with local memory and disk storage.
  • Based on 20 hours required to procure, prepare and provision each server with a labour cost of £28.23 per hour.
  • Based on the cost of server administration management time for tasks including change management, problem and incident management, monitoring, performance and availability management, asset management, security management, patch and upgrade management, backup and recovery, restores, storage management, disaster planning, compliance management/reporting, vendor and contracts management and financial/budget management. Based upon 3 server workloads consuming 8% of a server administrator’s overall workload (average of 40 workloads managed per administrator staff) over the year with the burdened labour cost per server administrator being £54,578.
  • Based on the annual cost of backing up 30GB of data to an off-site facility at a cost of £8 per GB per month. Includes 10% data growth per year.
  • Based on the annual cost of software assurance licenses for MS Windows, MS SQL Server, MS Office and 5 user access licenses.
  • Based on each server requiring 516 Watts of operating power and 645 Watts of cooling power at £0.0646 per kWatt hour.
  • Based on one server rack in a data center facility consuming 23 square foot at an average annual cost of £205.05 per square foot.
  • Based on an average of 14 days a year consulting from the application vendor during application upgrades and maintenance releases at a cost of £1,350 per day.
  • Based on an average of 6 days a year of internal IT project management with a burdened labour cost per project manager of £500 per day.
  • Based on an average of 13 days a year of internal business unit project management with a burdened labour cost per project manager of £500 per day.
  • Based on an average of 5 days a year of internal IT application support requirements with a burdened labour cost per application support resource of £500 per day.
  • Based on an average of 3 days a year of internal IT training time for new/replacement application support resources with a burdened labour cost of £500 per day.
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