Defining Total Cost of Ownership of Government Software – Part I: The “T”

IT purchasing decisions in government have gotten complicated over the last five years. There are more factors that need to be considered than ever. To me, that’s perfectly fine as long as we evaluate the factors correctly. After all, we are asked to invest significant public dollars in our choices, and I want that list of things to be as complete as possible.

Because it helps better define the overall value and risk of a software solution, a concept called total cost of ownership (TCO) is getting a lot of attention. This is a particularly vexing question given that we often purchase software through a request for proposal (RFP) process. The problem with this is that the vendors’ responses often focus on the features and functionality of the product. But how can a government agency base its buying decision on this alone, when it also needs to know if/how this product will improve over time, be supported, serviced, etc.? I’m going to tackle these questions in a three-part blog series, and this one will focus on how I define the “T” of TCO. Here are some questions and considerations to help you think a little bit more completely about the potential costs – and risks – of a software purchase:

Maintenance – Is the maintenance included? What is the percentage and what does it support? How many product releases have happened in the past, and what is the typical release schedule for updates? Are updates to the software included in maintenance? If not, you do not have the “total” of total cost of ownership.

Self-supporting – Does the solution offer an option for a revenue stream? Does it offer automation or other tools that allow you to collect fees faster? The document management solution with a lower initial price tag usually doesn’t offer automation, nor does it have modules that may allow a document subscription module that can help you meet the needs of providing documents to the public, and allow you to charge for them as permitted under subscription or Freedom of Information Act (FOIA) requests. So don’t be fooled – the lowest upfront price may be costing you a revenue stream in the long run.

Custom services – This is my least favorite aspect of reviewing proposal. But, it’s the most critical one, because it has the most impact on how your solution works – or doesn’t work – for the long term. First, what level of customization is needed to create the document management solution you need? How much customization will the product need to integrate with your other applications? If you are interested in workflow, are there custom services costs that come with it? Have you asked other customers of your vendor whether the initial estimates provided are ultimately accurate?

My experience with this is that the estimates are often unreasonably low. Or worse, the vendor isn’t familiar with government and therefore, could never have had any basis for the estimate they provided in the RFP. If that is the case, and assuming that lower prices win deals, we are setting ourselves up for a project that will go over budget because the number was never based on the realistic needs of a government agency.

Finally, what is the track record for when and where custom services must be used? Many ECM vendors require or make it impossible to change or enhance your own solution, requiring you to hire them for simple changes like a new scan queue or a keyword change. This is really scary since we know how often we are asked to make changes to IT in government!

So, my strongest recommendation in the quest for a true “total” is compare, compare, compare. Read the analysts and check references. And, don’t just take the limited number of references provided in the proposals. Use your colleagues across other agencies, counties and states. I can guarantee that you will see patterns emerging that provide more data. This includes a proven track record of sensible pricing, maintenance that supports both technical support and real product updates, and frequent new functionality. And, most importantly, you’ll get a complete picture of how well the solution will – or won’t – empower you to be successful for the long-term, helping your government agency to streamline and grow affordably.

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