As manufacturers have pivoted and adapted operations over the past few months, they have increasingly embraced the benefits of cloud computing—not just for back office business applications but also for quality management and operational analysis.
Although the benefits of cloud-based manufacturing quality software are increasingly apparent, organizations may still be concerned about the upfront investment. However, with the flexible licensing options of Software-as-a-Service (SaaS) models, that upfront cost is dramatically reduced.
But organizations must consider the total cost of ownership (TCO) of a solution. Although TCO is important, it’s often ignored when companies compare the costs of owning on-premises to cloud quality solutions.
Total Cost of Ownership
The term “total cost of ownership” is wildly bandied about lately; for our purposes (enterprise quality management software systems), it is the sum of all direct and indirect costs incurred by the software. And it’s a critical part of any return on investment (ROI) calculation.
Think about owning a car. A lot goes into it. There are insurance, repairs, and maintenance—those are obvious. But there are the hidden parts that we take for granted, too—learning to drive (training), paying taxes and license fees to get that car on the road (implementation), and the personal time you spend on cleaning and keeping it nice (maintenance/upgrades).
Owning a quality management system, is a lot like owning a big-ticket item like a car. It involves hidden and not-so-hidden costs that we seldom take into account when we consider the total cost of ownership.
Unfortunately, TCO is often ignored—or at the very least is woefully underestimated. In some cases, it’s potentially impossible to calculate accurately when organizations assess and account for all the costs of owning a quality system and installing the software within their own IT infrastructure.
Costs That Add Up: What to Consider
The things you need to include in your complete TCO assessment are too numerous to list. However, just considering a minimal list provides an idea of the potential scope of costs involved:
- Software—Off-the-shelf software usually has up-front costs, which include:
- The initial capital cost (CapEx) to purchase the software user licenses.
- Annual Maintenance Agreement costs, typically 15-20% of the initial licensing cost, providing you with access to the vendor’s technical support and software upgrades, which include critical bug fixes
- The initial CapEx to purchase additional software components to support the business system (e.g., operating system, backup software, cybersecurity software, database licensing)
- Any finance charges
- Hardware—The cost of servers, cabling, storage devices, racks, and other hardware needed to run the software and provide backup and disaster recovery functionality.
- You might hear the argument, “We already have hardware, servers, database licenses, backup and security systems, so there is no cost for this.” These items always require ongoing investment.
- If a software package is placed on already existing IT infrastructure, a portion of the cost to own/maintain that IT infrastructure needs to be assigned to each software package/project using that IT infrastructure. There is no “free lunch” in this scenario—ever.
- Implementation—The cost of setting up, configuring, and testing the software so it can be used in production. Applies to all software (cloud or on-premises), although with custom software the configuration is usually part of development. Also includes the costs of setting up things like backups and disaster recovery.
- Labor Costs—When calculating labor costs, don’t forget to calculate them based on the “loaded labor rate”—your employees incur additional costs such as taxes, benefits, training, supplies, all of which increase your actual employment costs.
- Data migration—The cost of moving data from the old to the new system, including data format changes. Sometimes this is not economically viable, so the old system is archived in a read-only mode, just in case it’s needed.
- User licenses—For off-the-shelf software, these typically come in only a few flavors: named users, simultaneous users, plant-wide, and employee-based. For the cloud, licenses are usually named. Does not apply to custom (“home-grown”) software.
- Training—The cost of training employees to use the software. Applies to all types of software. Note that in addition to end users, helpdesk and system admin employees must also be trained.
You can see that is a lot to ignore. But many manufacturing organizations fail to account for these costs. Why? We can surmise that their reasons include a variety of arguments:
- Maintain the status quo—Hosting on-premises software is an assumed cost of doing business.
- Change is difficult—The organization prefers to take the path of least resistance.
- It’s not a priority—Quality professionals and management simply have too many other competing priorities.
- IT resistance—Maybe someone in the IT department is worried that they won’t be needed any longer? (That is typically an incorrect assumption. SaaS software simply frees them from mundane software maintenance so they can spend their time on more critical needs, such as making sure the company’s cybersecurity defenses are as strong as possible.)
Don’t Ignore the Costs of Hosting Software On Premises
Once you’ve added up true costs, comparing on-premises deployment and a SaaS solution is very simple. There are just two basic rules:
- Rule #1 – SaaS is always LESS expensive for a company to operate in the long term
- Rule #2 – If someone claims SaaS is more expensive than on-premises solutions (in the long term), re-read Rule #1
Don’t believe it? Please do your own research. To make it easier, here are a few TCO articles and calculators to explore:
Perhaps it’s time for your organization to shift gears and move from an on-premises to a cloud quality solution. The price is definitely down for cloud software, the technology is certainly solid and proven, and the time is right.