D'Arcy from Winnipeg
Solution Architecture, Business & Entrepreneurship, Microsoft, and Adoption

The True Cost of a Solution

Sunday, June 10, 2012 2:47 AM

I had a Twitter chat recently with someone suggesting Oracle and SQL Server were losing out to OSS (Open Source Software) in the enterprise due to their issues with scaling or being too generic (one size fits all). I challenged that a bit, as my experience with enterprise sized clients has been different – adverse to OSS but receptive to an established vendor. The response I got was:

Found it easier to influence change by showing how X can’t solve our problems or X is extremely costly to scale. Money talks.

I think this is definitely the right approach for anyone pitching an alternate or alien technology as part of a solution: identify the issue, identify the solution, then present pros and cons including a cost/benefit analysis. What can happen though is we get tunnel vision and don’t present a full view of the costs associated with a solution.

An “Acura”te Example (I’m so clever…)

image

This is my dream vehicle, a Crystal Black Pearl coloured Acura MDX with the SH-AWD package! We’re a family of 4 (5 if my daughters ever get their wish of adding a dog), and I’ve always wanted a luxury type of vehicle, so this is a perfect replacement in a few years when our Rav 4 has hit the 8 – 10 year mark.

MSRP – $62,890

But as we all know, that’s not *really* the cost of the vehicle. There’s taxes and fees added on, there’s the extended warranty if I choose to purchase it, there’s the finance rate that needs to be factored in…

MSRP –   $62,890
Taxes –      $7,546
Warranty - $2,500
SubTotal – $7
2,936

Finance Charge – $ 1094.04

Grand Total – $74,030

Well! Glad we did that exercise – we discovered an extra $11k added on to the MSRP! Well now we have our true price…or do we?

Lifetime of the Vehicle

I’m expecting to have this vehicle for 7 – 10 years. While the hard cost of the vehicle is known and dealt with, the costs to run and maintain the vehicle are on top of this. I did some research, and here’s what I’ve found:

Fuel and Mileage
Gas prices are high as it is for regular fuel, but getting into an MDX will require that I *only* purchase premium fuel, which comes at a premium price. I need to expect my bill at the pump to be higher.

Comparing the MDX to my 2007 Rav4 also shows I’ll be gassing up more often. The Rav4 has a city MPG of 21, while the MDX plummets to 16! The MDX does have a bigger fuel tank though, so all in all the number of times I hit the pumps might even out. Still, I estimate I’ll be spending approximately $8000 – $10000 more on gas over a 10 year period than my current Rav4.

Service Options Limited
Although I have options with my Toyota here in Winnipeg (we have 4 Toyota dealerships), I do go to my original dealer for any service work. Still, I like the fact that I have options. However, there’s only one Acura dealership in all of Winnipeg! So if, for whatever reason, I’m not satisfied with the level of service I’m stuck.

Non Warranty Service Work
Also let’s not forget that there’s a bulk of work required every year that is *not* covered under warranty – oil changes, tire rotations, brake pads, etc. I expect I’ll need to get new tires at the 5 years mark as well, which can easily be $1200 – $1500 (I just paid $1000 for new tires for the Rav4 and we’re at the 5 year mark). Now these aren’t going to be *new* costs that I’m not used to from our existing vehicles, but they should still be factored in. I’d budget $500/year, or $5000 over the 10 years I’ll own the vehicle.

Final Assessment

So let’s re-assess the true cost of my dream MDX:

MSRP                    $62,890
Taxes                       $7,546
Warranty                 $2,500

Finance Charge         $1094
Gas                        $10,000
Service Work            $5000

Grand Total           $89,030

So now I have a better idea of 10 year cost overall, and I’ve identified some concerns with local service availability. And there’s now much more to consider over the original $62,890 price tag.

Tying This Back to Technology Solutions

The process that we just went through is no different than what organizations do when considering implementing a new system, technology, or technology based solution, within their environments. It’s easy to tout the short term cost savings of particular product/platform/technology in a vacuum. But its when you consider the wider impact that the true cost comes into play.

Let’s create a scenario: A company is not happy with its current data reporting suite. An employee suggests moving to an open source solution. The selling points are:

- Because its open source its free
- The organization would have access to the source code so they could alter it however they wished
- It provided features not available with the current reporting suite

At first this sounds great to the management and executive, but then they start asking some questions and uncover more information:

- The OSS product is built on a technology not used anywhere within the organization
- There are no vendors offering product support for the OSS product
- The OSS product requires a specific server platform to operate on, one that’s not standard in the organization

All of a sudden, the true cost of implementing this solution is starting to become clearer. The company might save money on licensing costs, but their training costs would increase significantly – developers would need to learn how to develop in the technology the OSS solution was built on, IT staff must learn how to set up and maintain a new server platform within their existing infrastructure, and if a problem was found there was no vendor to contact for support.

The true cost of implementing a “free” OSS solution is actually spinning up a project to implement it within the organization – no small cost. And that’s just the short-term cost. Now the organization must ensure they maintain trained staff who can make changes to the OSS reporting solution and IT staff that will stay knowledgeable in the new server platform. If those skills are very niche, then higher labour costs could be incurred if those people are hard to find or if trained employees use that knowledge as leverage for higher pay. Maybe a vendor exists that will contract out support, but then there are those costs to consider as well. And let’s not forget end-user training – in our example, anyone that runs reports will need to be trained on how to use the new system.

Here’s the Point

We still tend to look at software in an “off the shelf” kind of way. It’s very easy to say “oh, this product is better than vendor x’s product – and its free because its OSS!” but the reality is that implementing any new technology within an organization has a cost regardless of the retail price of the product. Training, integration, support – these are real costs that impact an organization and span multiple departments.

Whether you’re pitching an improved business process, a new system, or a new technology, you need to consider the bigger picture costs of implementation. What you define as success (in our example, having better reporting functionality) might not be what others define as success if implementing your solution causes them issues. A true enterprise solution needs to consider the entire enterprise.




Feedback

# re: The True Cost of a Solution

So you're saying that a company implementing a new reporting suite will only incur higher training costs if they decide to go the route of OSS? What if they decide on a proprietary solution that nobody in the organization has used before?

My point is that training cost is not related to the licencing of the selected solution. It is, however, related to the organization's experience with the selected solution. Because you chose to ignore that fact the point and arguments you try to make in this post are completely flawed. 6/10/2012 3:23 AM | Donald Belcham

# re: The True Cost of a Solution

Donald,
I agree that D'Arcy is focussed only on a particular scenrio and outcome. However, his argument is still valid: "You need to consider cost of staffing, training, support, implementation cost, license cost and other factors." License cost is but ONE factor.
In many cases OSS IS the right choice when all these factors are considered. I, like D'Arcy see people trying making the case on license cost savings alone. THAT is flawed reasoning. 6/10/2012 5:19 AM | Aaron Kowall

# re: The True Cost of a Solution

Don - No, I just used that as an example since it was an OSS vs. Traditional Vendor convo that sparked me writing this. As Aaron pointed out, this argument is still valid if you were looking to convert Oracle to SQL Server.

"Oh I can save money per server core with SQL Server's licensing? Fantastic! What's that? I need to spend how much on a data conversion project to move our data from Oracle to SQL Server?"

I disagree on your take on training. That *has* to be factored in to any solution - training of those tasked with maintaining, training of end users, creation of manuals, etc. You can't say that the license cost is the sole aspect in determining the viability of a given solution, you have to look at the wider impact on the organization as a whole.

D 6/10/2012 10:09 AM | D'Arcy from Winnipeg

# re: The True Cost of a Solution

At my company we've got a good mix of both and the notion most people have that OSS is "free" is completely wrong, well, if you want any kind of support.

Lets take MongoDB as an example, the support contract that we need in order for it to be an acceptable addition to our production system means that it now costs virtually the same as MSSQL licensing and support.

Sure you could go on without a support contract but then what do you do when a bug in their software brings your system down? You can't do it responsibly.

There are no savings, there is only the right solution to the problem. Use OSS products for that reason only, not because you have the illusion that they're free. 6/11/2012 2:09 AM | Chris D

# re: The True Cost of a Solution

These kinds of analysis are never easy to do. I like that you point out that the pros and cons should be represented. Risk should also be represented when doing these kinds of analysis. Some of the fears mentioned in the post and in the comments are risk and if its not identified with the pros and cons then it's hard to make a well informed decision.

Monolithic software designs make these choices extremely risky and surface all these fears. Good architecture can sometimes reduce the risk of choices made. If you can reduce risk then you can afford to take a stab at one. Fail fast.

In the case of OSS, some people fear the cost because they aren't familiar with it. Once you embrace it you start to become much more familiar with the typical cost of taking on such things and you start to get much better at the cost analysis. It's also not a bad thing to become a contributor on these projects because that is also in your best interest for it to improve. You can even sponsor people who already work on the project to add features you require.

Sometimes keeping to "what you know" is actually costing the business more money because you aren't sufficiently addressing the concerns of the business but because development is seemingly faster it appears that going outside the norm would cost more.

What if the technologies your using limits the size of customers your product can reach? This limits your sales potential.

It's a complicated analysis and very much depends on a lot of factors and shouldn't be done by people with narrow views or you will lack objective analysis. 6/11/2012 3:09 AM | Kelly Sommers

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Among the absolutly perfect creations of Canada in term of cars, Sunshine toyota is the number one. It is so because the wonderful feature of this car which wins everyone's heart. 11/1/2012 11:18 PM | sunshinet

# re: The True Cost of a Solution

This is a great and useful post!I like this car as it has a powerful engine and a beautiful interior design.I am thinking to buy a Toyota but in the meantime I will have to purchase some bmw m3 performance parts in order to make my BMW look great.
2/6/2013 12:17 PM | Ryan Howell

# re: The True Cost of a Solution

Besides being a reliable car, by having a Toyota you can do some great tax savings as it is an affordable car.Moreover the registration taxes are very low as well as the insurance policy. 2/6/2013 1:28 PM | Laisha Conner

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