Calculated With the Utmost Care

March 3, 2003 by admin

In economically difficult times, cost awareness takes on a particular significance in companies, and the tendency is to take a long hard look at every cent before it is spent. This is also true of investments in information technology – now more than ever before. Companies are currently paying even more attention to the total cost of ownership and a fast return on investment for new IT systems.
This is nothing new for mid-size companies. Companies in this market segment have been calculating their software projects with the utmost care for years. Because of limited financial and human resources, they are forced to weigh up the advantages offered by new information technology. They therefore need to look closely at issues such as the procurement and operating costs involved, whether additional personnel is needed to cope with the day-to-day work, and whether further investments need to be made in more powerful hardware.
Similarly, a company needs to consider what clear benefits the introduction of an integrated business software will bring, and what problems could arise if it decides not to modernize the software in order to save money. In addition to optimized business processes and end-to-end working procedures, a holistic, modern system protects investments and is future-proof, thanks to the related maintenance and support contracts. These enable users to always ensure their software solutions are up to date. The advantage: if the economic or legal framework changes, the business software does not have to be replaced or enhanced with complex additional programming. The interface problems thrown up by a “patchwork” system landscape, that is to say, one that consists of various stand-alone solutions, which are added when required, should not be underestimated. The expense of constantly updating such an infrastructure as changes are required can be immeasurable.

Additional Costs: Fixed Amounts In the Budget

Total Costs

Total Costs

Investments in modern information technology can be split into two areas: procurement costs and operating costs. Costs for the acquisition of a system are comparatively low, and in view of the falling prices for hardware and software, are becoming even lower. Studies such as that conducted by the Gartner Group (see box) on the subject of IT costs put this at 15 percent of the total costs. The same proportion is spent on administration and on implementation. This includes the costs for consulting during the implementation phase and the adjustment of the standard software to company-specific or industry-specific requirements. However, potential savings can be realized here, for example by using industry solutions such as those offered by SAP.
To reduce implementation costs and time, SAP and its partners have developed IT solutions that are tailored to the typical business processes in the three main branches of business namely retail, industry, and services, as well as a number of individual industry sectors. With the help of Best Practices for mySAP All-in-One, certified SAP partners have developed numerous preconfigured solution packages. The presettings for the mySAP-All-in-One industry solutions draw on the experience gained from a large number of projects. The result: key processes have been predefined, tried and tested implementation methods have been defined, and training courses have been written. Compared to classical applications, a time saving of up to 30 percent can be achieved alongside a cost reduction of up to 40 percent.
In addition to the one-time costs for procurement and implementation, further expense is incurred for the use of the business software. These operating costs are grouped together under the umbrella “Total Cost of Ownership” (TCO). They include costs for procurement and also for operation, maintenance, and the updating of the information technology for its complete life cycle. According to the Gartner Group, this makes up 55 percent of the total costs, and should be planned for as a fixed amount in budget calculations.

Maintenance Contracts Offer Rapid Assistance

Once the software has been implemented, costs have to be planned for the ongoing service and support of the installation. Most companies pay a yearly flat rate for this in the form of maintenance contracts concluded with the software vendor or an external service provider. These contracts ensure that user problems can be clarified quickly and day-to-day business continues to run smoothly. This is particularly important in the early days of the installation. A 24-hour hotline also guarantees that customers are supported around the clock, and faults are repaired quickly. In addition to this service, a maintenance contract also ensures that errors are corrected at no extra cost – for example through the import of patches.

Keeping Step With Development

To meet changing market conditions and new requirements dictated by legislation or users, IT providers continue to develop their products and regularly provide their users with new versions of the software as part of maintenance contracts. A release upgrade is needed so that these updated versions of the software, and the additional functionality that they contain, can be used. In connection with this, companies should take the opportunity to optimize the use of their software in general. The experiences of users in everyday practice can be evaluated to identify areas where improvements can be made, and optimization can be carried out by “fine-tuning” the system. This is also a good time to map additional business processes to the system, or to implement additional solutions such as for Customer Relationship Management or Supply Chain Management.
The advantages of support services are clear. Annual maintenances fees generally pay for themselves in a matter of weeks thanks to lower downtime and better system performance. Indirect savings can also be made, because a more powerful system has a positive effect on employees and customers: the former are more productive, the latter more satisfied. As a result, the money is invested effectively, and the measures help to reduce costs.
Further information for small or mid-size companies in the print edition of SAP INFO.

Hans-Jürgen Uhink

Hans-Jürgen Uhink

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