Businesses are often faced with a choice of purchasing Software As A services (SAAS) versus building their own custom software solution/s which they can own, host and maintain. The article below outlines pros and cons of SAAS and the cost and risks of undertaking a custom software project in-house.
What is Software as a Service (SAAS) ?
Software as a Service is a distribution model where software is hosted and provisioned over the internet on-demand. SAAS is one of the categories of cloud computing. SAAS Software is typically:
- Sold on a subscription basis
- Provisioned over the internet/cloud
- Accessible over the browser
There are many advantages of SAAS model. Some of the key advantages are outlined below
- Lower upfront costs – The software is available on a subscription basis and license and provisioning costs are included in the software. The service provider manages all costs related to infrastructure and services to host and provision and maintain software. The costs are included in the subscription cost of the software.
- Speed of Deployment – SAAS software is faster to setup and deploy as the software is already installed and configured on the cloud.
- Easy to Upgrade – SAAS providers deal with all hardware and software upgrades as a part of the subscription service. These charges are already factored in the subscription costs.
- Accessible – SAAS software is accessible on the browser and the internet. There are pre-built mobility applications available to work on phone and tablets.
- Scalability – SAAS provides more scalability as the software hardware and infrastructure is built to scale with usage and managed from the provider.
- Redundancy – SAAS providers duplicate/Sandbox accounts as a part of subscription costs. The Sandbox accounts provide duplication of data and business processes to test and roll out new processes without the minimal impact to the business.
- Innovation – SAAS providers are continuously working to improve the software and service. The innovation is included as a part of the subscription costs.
- Extensibility – SAAS is available on business automation platforms. As the business grows new processes can be easily added.
- IT Staff – SAAS reduces human resources cost required to deploy and maintain software as the software and hardware upgrades are managed by the solution provider
Why is SAAS ideal for SMEs?
There are many reason why SMEs should look at investing in SAAS:
- Cost and Speed – The overall cost of SAAS is lower than any other provisioning model. This is because the costs are shared among users. SAAS software is already pre-built so its faster to deploy and is typically error free
- Consumer model vs solution provider – SMEs want to use IT to achieve a business objective and goals typically maintaining growth and profit. Running IT internally will take away from the core business operations and reduce overall profit and increase operational costs as they will have to undertake business operations to manage IT.
- IT Project Business Risks – Managing an IT project internally will require a business to undertake the management of business risks and administration of IT activities by trained professionals. This will increase overall spend on business operations.
Worked Example – What does it cost to do undertake a custom process automation Software project in house by employing project resources for 4 months?
Key Cost Summary:
We assume the client is hiring right resources with proven capability. Recruitment and IP costs are not included in the worked example.
- Software Architect from $180,000 per year ( 4 month @ $60,000)
- Software Developer from $120,000 per year ( 4 moths @ $40,000)
- Infrastructure Hosting, Software Development Kits & Databases costs from $20,000 per year
- IT Project Manager from $150,000 per year ( 4 months @ $50,000)
- Testing and Release deployment (Managed by Client estimated as 150 hrs @200/hr ) from $30,000
- Bug fixed ( Managed by Client and IT estimated as 100 hrs @200/hr ) from $20,000
- Annual Software and maintenance cost from $30,000 per year
- Training costs from $25,000 per year
Total Year 1 – $255,000 – $300,000 (including 15% contingency)
Year 2+ – Support and Maintenance plus hosting
- 25% of Asset Cost plus hosting and licence charges = 25 % of $200K + $20K = $70K per year (Low End)
- Business Risk is high as an SME will need to undertake and internal project to develop software
- Business will still need to use legacy complaint systems including accounting and payroll, as these systems cannot be easily rebuilt and the customised solutions will need to be built around them.
- New process and features will cost more money to develop as the solution is custom built based on an initial design sign off agreed at the onset of the project.
- New features may require software updates which will cost more money and may require software re-write. The costs of such re-writes is not factored in the worked example.
- Development Testing may require additional time to deploy
- Lack of sandbox will create business risk to roll out new releases and may require additional deployment costs.
- The end system may not be a high quality as expected.