SaaS TCO Calculator

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SaaS TCO Calculator
by David Bush
May 21, 2007
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I recently came across a document which was created by the Software & Information Industry Association- SIIA. From the executive summary:

"According to Gartner, a global IT research firm, the annual cost to own and manage software applications can be up to four times the cost of the initial purchase. As a result, companies end up spending more than 75% of their total IT budget just on maintaining and running existing systems and software infrastructure.1 With the introduction of computers, companies have accepted this as a cost of doing business. The number of software applications that a company may need are infinite. The resources to operate these applications however are finite.

The Software-as-a-Service (SaaS) revolution allows companies to subscribe to software applications and outsource operating the back-end infrastructure to the SaaS vendor. In most cases, the SaaS vendor can do this much more cost effective; providing overall cost savings for the company. As a result, companies can spread their IT budget across many more applications to support and grow their business operations which will in turn contribute to the bottom line.

This document educates end-users and decision makers on Software-as-a-Service (SaaS), where it differs from traditional software, and what the key benefits are when deploying SaaS applications. In addition, this document also provides the reader with a comprehensive look at the Total Cost of Ownership (TCO) analysis any decision maker should complete before making a choice between a SaaS or a traditional software deployment."

Key Arguments in Favor of SaaS Applications

There are many arguments that can be made in favor of SaaS applications but there are four key arguments that make a surprising but resounding case for deploying SaaS applications. These four arguments are:

  1. Making the IT budget go further
  2. No underestimation of people services
  3. SaaS allows better growth management
  4. Accountability of the SaaS vendor

I am not going to copy the actual breakdown/calculator into this post but the criteria used are:

  • Comparable Cost Analysis
  • Capital Expenses
  • Hardware
  • Software or License costs
  • Support and Maintenance
  • Upgrades
  • Facilities/Datacenter Expenses
  • Management and Operations
  • Design and Engineering
  • Integration/Implementation
  • IT and Helpdesk Staffing
  • End User Training
  • Scheduled Maintenance
  • Unscheduled Maintenance and Outage Recovery
  • Monitoring and Security
  • Legal/Purchasing and General Administration
  • Intangible Costs
  • Reliability and Availability
  • Interoperability
  • Extensibility
  • Security
  • Scalability
  • Performance
  • Capacity
  • Opportunity Costs
It is a very comprehensive set of metrics that these professionals used to build the custom value calculator, especially if you overlook a couple spelling errors. This is a very interesting white paper for those that are considering differences between SaaS and installed software options in any industry whether its eSourcing, web conferencing, CRM or a myriad of others.
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