How to Budget for Business Software
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Many companies build budgets for new business software systems. But how many will be over budget when the project is finished? Will you? Join us for this practical webinar, and you’ll learn: - What most companies forget to include in their budgets - What percentage of revenue the average company should spend on IT by size of annual revenue - How to compare the costs of cloud vs. on-premise software - How often the average company changes business management software - And much more Watch the recorded webinar at http://www.blytheco.com/webinars/record.asp?event=9027
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How to Budget for Business Software
- 1. www.blytheco.com Presented by Blytheco We will begin momentarily…
- 3. Welcome! Today’s Agenda Introductions How to Budget for Software Implementation Q&A
- 4. How to Participate Today • Arrow = Open/close your panel • Questions = Submit text questions • Follow-up email with video link
- 5. Introductions Apryl Hanson Senior Director, Customer and Partner Strategy, Blytheco San Francisco Bay Area 12 years of extensive business system and management consulting experience, specializing in sales, marketing, customer experience and process improvement. Broad industry experience including financial, manufacturing, entertainment, retail, software development, marketing automation, SaaS and wholesale/distribution. Lover of shoes, food and dogs.
- 6. Audience Poll… How Well Does Your Company Budget for Software? We have a good handle on all the costs associated and are never surprised with budget overruns We have a handle on the costs but sometimes have budget overruns We have an idea what costs to include but are often surprised by the final cost We don’t really know what to include in the budget for software, and usually have budget overruns We have no idea what to put in the budget for software, and our CFO has heart failure when we suggest a change
- 7. How to Budget for Software Implementation Apryl Hanson, Blytheco
- 8. How to Budget for Software Implementation… What are common problems when budgeting for software?
- 9. Why Do Projects Go Over Budget? A study by Panorama Consulting showed that reasons for going over budget on ERP projects included: Additional technology needed to be purchased to meet project goals – 16.7% Project budget was unrealistic - 16.7% Project staffing was underestimated in the initial budget – 22.2% Initial project scope was expanded – 44.4%
- 10. Instead…..take your time getting to a number
- 11. Scope: Key to Your Software Budget It’s vital to define scope of the project before you can know how much it will cost Do you want a Ferrari or a Ford Focus? What functionality do you need? What reporting do you need? How many users? What other software will you need (i.e., EDI, ecommerce, etc.)?
- 12. Cloud-based or On-premise? Each has different costs On-premise Lower software cost, but consider: Hardware costs Hardware maintenance costs (appropriate room, IT staff, etc.) Maintenance and upgrade fees Integration costs Cloud Lower hardware costs, but consider: Subscription costs
- 13. What Should Your Software Budget Include? Software Costs • Licensing • Consider # of users • Add-on software • Maintenance fees Hardware (On-premise) • Server • IT Staff Services • Implementation • Data conversion • Integration • Customization • Training • Support • Data conversion • Data cleansing
- 14. Plan for Growth How long will your next system last? You don’t want to have to change software again sooner than you need to Cost Downtime Most companies change their business software every 8 years on average Early adopters will change every 5 years Recession caused some companies to wait longer What’s right for your company depends on your growth rate On premise solutions may have longer lasting power so you don’t have to change as frequently
- 15. How Much Should You Expect to Spend? What Percentage of Revenue Do Companies Spend on Software? Small companies (Less than $50M) spend 6.9% of revenue on IT on average Mid-sized companies ($50M - $2B) spend 4.1% Larger companies (over $2B) spend 3.2% * Manufacturing companies on average cost about 14% more than other industries and the average cost to revenue ratio is .3% higher than that of all industries due to the complexity of those additional requirements.
- 16. How Much Should You Expect to Spend? Keep in mind that: Implementation costs can run from 1-1/2 to 2 times the cost of the software, depending on your needs and customization For cloud-based software, the ongoing cost of the software could have a 1:1 ratio with implementation For on-premise software, the software itself may be a small percentage of the total software budget
- 17. Cheapest Is Not Necessarily Best In fact, cheapest is usually NOT best Good discovery = getting what you need Thorough discovery = no surprise costs Study: 63% plus of manufacturing ERP implementations go over budget, with actual cost exceeding expected cost by an average of over $3 million. Integration with other software often the cause Complete discovery = smooth “go-live” Study: 51% of organizations experienced some sort of material operational disruption at time of go-live, such as not being able to ship product or close the books. Of those, approximately two out of three experienced a disruption lasting one month or more.
- 18. Cheapest Is Not Necessarily Best Make Sure You’re Comparing Apples to Apples in Proposals you Receive: Customized system vs. “out of the box” Does it Include all of add-ons you need? Have you considered phasing to reduce up front costs? Compare the hours allotted for training? Include project management hours? Calculate your own teams responsibilities in the project and your level of involvement.
- 19. Consider Funding Options Is This the Right Time to Get What You Need? May need to wait a year to afford/justify the system your company needs in the long term Get it right rather than getting it right now Consider your funding options as many companies can fund software + implementation and training for you Why go through a software implementation twice in a short period? Additional cost Downtime twice
- 20. Conclusion Remember: It’s vital to scope your project before you budget, including all the functionality your company truly needs Conduct thorough discovery to uncover what your company requires Consider all the costs involved, not just software Remember, cheapest is not usually best Get it right, not right now A good consulting partner will help you build the right budget so that “go-live” is a non-event
- 21. Please type your questions into the Questions Pane on your GoToMeeting Dashboard. Q & A
- 22. Get a free 2-hour consultation You can get two hours with me! Want more info? Get the (add asset) Questions? 949.583.9500, x2500 or solutions@blytheco.com Next Steps?
Editor's Notes
- Kathy – Intro
- Kathy speaking
- Kathy speaking
- Kathy speaking. Thanks for participating in the poll…we are now going to jump right into our presentation
- Not defining scope of project Not budgeting for ongoing costs of software SaaS license Maintenance Support Not including full costs of implementation Not budgeting for add-ons, additional users, hardware
- Panorama Consulting Study – What we find at Blytheco, after going through well over 5K projects in our 36 years of business is that these is often a rush to get to a project number – The more time we spend in the initial stages understanding a business, the more we can be exact with a budget number. Often times budgeting time and project planning go hand in hand and there is a last minute rush to get a number to put into the budget – RUSHING at this stage can be incredibly damanaging and often times that is what leads to the statistics you are seeing here.
- That is why we recommend taking your time to get to that project budgetary estimate. You may call and talk to a few people and think you have gotten a rough estimate of costs. I’m here to tell you unless someone has spent significant time getting to know your business – it is really challenging to give you a number that will actually equate to your final project budget. No two software implementations are the same – there are similar qualities and areas to watch out for – but each business has it’s own unique needs.
- We all want to get the best price, for the best quality product we possibly can. It is important to know your limitations before your start. Part of this is understanding, number of users, reporting needs, the number of software connections that will need to be brought together – these are the items that tend to drive costs up. If you aren’t ready for the BIG system implementation define how you will get there in time. Also consider being open to understanding how this software will impact the future growth of your business – if there is additional growth potential, spending more may benefit you in the long run. Understand and discuss what your limitations will be. A good software provider can help you identify where there will be upside in an software implementation for your business. Weigh these cost savings against the costs to determine what the right choice is for your company. Refer to Scoping webinar we recently had—they can watch the recording for more info on scoping a project, plus get a scoping template
- A lot of companies have misconceptions about this prior to even beginning their software investigation process. They will say “we are against cloud” or “we only want cloud” – both have implications on the budget from a short and long term perspective. My tip and advice is to determine your budget independently of a choice of on-premise and cloud – when it comes to software selection time weight the pro’s and con’s of each option for your company and make the determination on what is going to give your company the strongest chance of growing and increasing profit. I often tell people – if you are in a steady slow consistent growth mode that a cloud product might not be right for you – additionally if you are planning on experiencing high growth OR you want to have high growth in your company – doing without a cloud solution may be challenging.
- Many people forget to think about these key areas and then when it comes to getting the details about the project they start to cut out key needs. Additionally they underestimate how long it will take for some pieces of work to be completed. For instance one misconception is that if two pieces of software packages have open API’s that they will be easy to integrate. – This isn’t necessarily the case – the program that will integrate and connect them to each other would still need to be developed and that can take weeks of work alone. This is why it is important for you to not only take a look at what your system needs are but how you will want that overall software to fit into your business and connect to other pieces as well as some of the potential other hidden costs that you may not consider up front. We try to bring all of these budgetary concerns up early in the process so that you are entering a project with eyes wide open.
- How long will your next system last you? Some of the more modern systems in the market today are developed so your company won’t outgrow them as fast as some of the more traditional on premise software packages. Most on premise software packages don’t add features and functionality as quickly as cloud solutions. This is because they usually package up their upgrades to happen in annual increments AND if you have integrations with other systems they will have to be verified and checked to ensure that they are working. Cloud solutions are developed differently in which upgrades are released as developed and tested and aren’t impacting areas where customizations are integrated allowing features and functionality to be developed sometimes faster than a user can adopt them. Understanding which evvironment is right for you can help you determine how long you want this next system to last for your business AND when you should plan for your upgrade to either newer versions OR another software selection that is appropriate for your growth.
- These are some average guidelines that will help you determine what may be appropriate for your company depending on where you are financially. Other things to consider will also be where you want to be financially as an organization. If you are planning for a rapid growth you may want to consider spending a higher dollar amount based on the % of revenue that you are planning to be at. Type of industry is a big factor in cost Studies have shown that ERP implementations in manufacturing companies cost 14% more than other industries. The average cost to revenue ratio in the manufacturing industry is 0.3-percent higher than that of all industries. Reason? Complexity
- Keep in mind that the correct implementation can make or break your project. We have talked to users that both love and hate a solution and the only difference between those to two is the implementation and training. Planning for a proper implementation and not rushing can assist you in ensure that it is successful for your business.
- Panorama Consulting study Tell story of the seamless go-live Implementations introduce risk into organizations. Time spent with employees being distracted with implementation and training, process improvement and change management can take them out of the business and reduce effectiveness in your organization – this is a temporary pain for a long term gain if the implementation goes successfully. Regular meetings and project management can keep projects on budget and on-time – When you have a proposal that is considerably lower than other solutions and implementation proceed with caution – as it is more likely that there is a key area of the implementation or integrations/customizations that they haven’t well planned out. It usually isn’t because they have found a quicker/better way to provide the service. Higher quotes are often being not only more conservative with appropriate planning, time management and have a higher likelihood of ending up on time and on budget.
- Panorama Consulting study
- Kathy facilitating Q&A, reading the questions aloud to Mike and Skip
- Kathy speaking.
- Kathy speaking, wrap up.