Hear traditional IT service management companies tell it, and you’d think buying their software or application service is a budget-smart choice. You’d be wrong. Legacy ITSM solutions carry a hefty price tag from the get-go. Tally up spending on customizations, piece-part licensing and upgrades, and the cost of ownership can reach obscene proportions – an extra quarter of a million dollars here, a half a million there. ITSM often becomes the bitter pill no enterprise IT executives will do without despite the difficulties they have swallowing its associated costs.
But as an increasing number of IT executives are finding out ITSM costs don’t have to be gag-inducing. When delivered on demand in a software-as-a-service (SaaS) model, ITSM gets a whole lot more palatable from a total-cost-of-ownership (TCO) perspective. No need to invest big bucks up front, or choke down hidden charges, exorbitant maintenance fees that emerge over time or pricey consulting fees that crop up every time you want to do more than a little tweak. Rather, you pay only for what you need, when you need it, based on subscription pricing for flat-cost predictability.
The SaaS TCO Advantage
Whether you’re just getting started with an ITSM project or considering an upgrade to an existing implementation, now is the time to think about how ITSM delivered through a new model with modern technology could benefit the bottom line – not to mention tighten that all-important relationship between IT and the business.
Indeed, licensing, together with software maintenance and support fees, represents a big gotcha when it comes to costing out an on-premise ITSM tool. But a TCO analysis doesn’t stop and start at that. When conducting a TCO analysis, you’ve got to be sure your number-crunching includes spending on consulting, internal resources and infrastructure, too. How each factor comes into play in your TCO will depend on what your organization is trying to achieve.
- Are you weighing upgrading an existing tool against using SaaS ITSM?
- Have you reached a breaking point with a legacy tool and now want to shop around for another provider, on-premise or otherwise?
- Do you want to replace an outsourced ITSM service delivered in an application service provider (ASP) with a SaaS option?
Regardless, you might be surprised by just how much more sticking with tradition might cost you rather than going the new-age services route to ITSM. In a nutshell, SaaS implementation saves time and money on existing ITSM implementations. SaaS customers often replace annual maintenance fees with a single subscription to all applications, implementation time and cost savings of 75% compared to legacy ITSM tool upgrades, and 100% infrastructure and upgrade cost avoidance. SaaS substantially reduces ITSM tool TCO.
The same goes for old, rebranded ITSM technology delivered in an application service provider (ASP) model. This model falls into the same cost traps as on-premise implementations because ASPs rely on client/server software technology, too. Essentially, the ASP is simply providing residency for a legacy ITSM tool. The same application maintenance and support costs exist in the ASP model and often become more expensive through the introduction of a veritable software broker. Somebody still has to monitor, tune, deliver availability, track and fix bugs, and implement upgrades. You might shed this responsibility but not the cost.
In fact, when you start peeling away the layers, you’ll quickly see that the ASP model includes unpredictable hidden costs. Hosted client/server applications weren’t designed to be delivered as a hosted service. Not only do the same client/server limitations of on-premise solutions apply in an ASP model, they’re magnified. Here’s why:
Driven by service margins, an ASP requires standardization of the applications it provides. Once an individual system requires change, the ASP loses significant operating margin. For this very reason, hosted client/service applications are not meant to be changed – you get what you see. In the event you want to configure the application to meet your needs (which all IT organizations do) you may succumb to additional fees.
Next-generation ITSM SaaS alleviates those problems by enabling customers to leverage out-of-box ITIL process or completely customize the application or even build new applications to meet specific needs. Modern software empowers IT to do more on its own and eliminates the use of high-dollar consulting or service fees. For the price of a SaaS implementation, you get the full range of ITSM capabilities, including problem, change, release, configuration, request, IT cost, service portfolio, field service, knowledge, service-level, asset portfolio/contract, project and portfolio management, along with shared services applications that extend the services you can offer to include HR, facilities and sales force automation. All that, plus a service catalog and a configuration management database (CMDB) too. You also get automatic upgrades that preserve all customizations, continuous monitoring of instances, 24/7 support, full redundancy and more.
Understanding True TCO
Let’s take a closer look at what factors you’ll need to consider when conducting your TCO.
Licensing, software maintenance and support
Naturally, if you already have an ITSM application in use that you’d like to upgrade, then you have sunk costs and don’t have to account for an initial outlay. However, getting a solution from a tool vendor on a complete subscription basis will likely mean buying additional licenses or acquiring completely new application modules. Those will cost you.
If you can no longer abide by your ITSM tool and want to start from scratch with a new vendor, then you’ll need to compare the price of a new tool and the SaaS implementation fees. However, with the tool option you’ll also pay an annual software maintenance fee, which typically runs at about 15% (or higher) of the software’s list – not discounted – price. For that fee you’ll generally get rights to software upgrades, access to bug fixes and patches and basic support. You’ll pay extra should you want a little special attention, such as the ability to reach technical support 24/7. So, be sure to account for Platinum-type support should that be your tendency.
You will not need to factor an annual maintenance fee into a SaaS model. It’s nonexistent. The annual subscription includes access to all applications (including multiple instances), disaster recovery services, support, upgrades, application hosting, admin training and continuous maintenance and monitoring of your instance.
Consulting
ITSM tools can be tricky, making new implementations, re-implementations and ongoing maintenance and upgrades an ITSM consultant’s bread and butter. As many an ITSM tool user has learned, fine-tuning, maintaining or upgrading your deployment can mean repeatedly forking out ongoing, but oftentimes completely unpredictable, consultancy costs. Some SaaS implementation companies suggest a three-year upgrade model for helping to factor on-premise tool consulting costs into your TCO.
In year one you’ll spend on the implementation consulting
Year two on ongoing maintenance just to fine-tune the implementation, and
Year three, on an upgrade.
The cycle continues with consulting costs in the next two years focused on ongoing maintenance and, in year six, upgrade. Still, adhering to a three-year upgrade cycle puts most organizations two, maybe three, releases behind. This delay in continuous upgrades is the pinnacle of the upgrade conundrum. As legacy track records show, if an organization is behind two or three releases it may face a re-implementation. Given that the average ITSM tool implementation requires a consultant’s time for 47 weeks, on average, while an upgrade runs in the ballpark of 30 to 35 weeks, you can see how the consulting costs ramp up quickly.
Ideally, no ongoing consulting fees are required and implementation services are delivered in a flat-fee statement of work in a SaaS model. The result is complete cost predictability. An automated upgrade process delivers continuous innovation and new functionality three times per year – at no additional cost. During six years, in fact, it might so happen that an IT organization with 300 users will see as much as a 92% reduction in consulting costs when comparing an ITSM tool to a SaaS subscription.
Managing the system using internal staff
Given the complexity of a legacy, on-premise ITSM tool, you’ll need to account for a variety of associated staffing costs – for systems administrators who maintain and manage the tool (one or more for each module) and developers who customize the tool to your needs, for instance, as well as application and database server administrators on the backend.
In general, customers typically have at least three systems administrators, and one or so application and database server administrators as well as about two developers for legacy ITSM tool deployments. On the other hand, the ITSM-as-a-service model only requires an application administrator – and only for configuring the application and managing roles and responsibilities.
Infrastructure
Obviously, one of the glory points of SaaS is that no infrastructure is required. You’ve got no such luck with a legacy ITSM tool implementation, for which you must account for the server infrastructure on which the applications run as well as for the corresponding application and database server and RDBMS licenses. And don’t just count those costs once in your TCO. Remember to factor in each type of infrastructure scenario – development and testing, quality assurance and production, for example – as well as the hardware and licensing required for redundancy and failover. And, don’t forget about hardware refreshes. Over the six-year ITSM TCO lifecycle, you’ll want to account for at least one hardware refresh.
Conclusion
Once you’ve conducted a TCO that factors in these major costs plus myriad others, you’ll no doubt discover that ITSM as a service offers great opportunity to make a change, improve processes and, especially, reduce operating costs.
