To Buy or To Build - Comparing Costs

Managers choosing the build option often take a very short term view of custom database software costs.  It is not unusual for most to believe that initial design and programming make up the majority of those costs.   

In Perspectives on Software Engineering, Marvin Zelkowitz from the Institute for Computer Sciences and Technology, National Bureau of Standards, Washington, D.C reports on extensive research findings on the costs associated with custom database development.  He identifies several categories of cost.  Only 5 % of the costs are in the initial design, and only 7 % in the initial program coding.  On the other hand, 15 % of the overall cost is spent on testing, and a significant 67 % of the costs occur after the testing cycle is completed.

Mark Lutchen, former CIO of PricewaterhouseCoopers, makes this point as well.  He indicates that when evaluating whether to buy or build, it’s critical to thoroughly understand total costs during the software lifecycle.  This step is important, says Lutchen, because 70 percent of software costs occur after implementation. (InfoWorld, February, 2006).

Plus, it is important to keep in mind that, according to Microsoft, software technology is advancing 10 fold every 18 months!  It is particularly difficult for most managers to estimate the overall cost of not maintaining and updating an internal system.  Advances in technology over just 2 short years could easily cut in half the time and effort involved in case management, with a corresponding savings in salaries and benefits.

Unfortunately, internally developed systems suffer from a gradual decay of the software as it is steadily under funded.  With the efficiency and effectiveness of the software in question, much of the initial investment is lost as the expensive design, development, and maintenance cycle begins again.

While outside consultants or internal IT departments can sometimes provide software delivery at what appears to be a low cost, it is virtually certain the majority of costs in time and money will just be starting. 

The lifetime cost of a built application can easily exceed twice that of a comparable application from an established vendor for several reasons. 

• Economies of scale - With the buy approach, an established vendor has already spread development costs among a much wider audience nationwide or even worldwide, possibly for many years.  In addition, they continue to do so.  A consultant or internal IT department cannot say the same about the build option.

• More experience to start with - The build option starts at a serious disadvantage.  An established vendor has already incorporated time saving capabilities and ease of use, all available on the day of your installation.  A custom built application, which draws on ideas from a handful of local managers and is designed over a much shorter time span, will be missing many of these important features.

The limitations of user specifications in a custom build project partly explains why such a large portion (estimated at 70 percent by most experts) of overall costs occur after installation.  After installation, programmers continue to make unanticipated software adjustments, correcting weaknesses and performance issues, and adding significantly to costs.

• Technology is changing rapidly - Microsoft reports a 10 fold change in technology every 18 months!  It is very difficult for any custom built application to  keep up with this rate of change.   With these rapid advances, custom projects inevitably require a redesign, starting over again with the expensive design, development, and maintenance cycle.  These factors combine to increase costs well beyond expectations. 

A built application can also include a number of hidden costs. A build approach will take some time before it can provide a significant return on your investment.  During this time, a solution from an established vendor could be saving you tens of thousands in staff time. 

In addition, if the developers of a custom application decide to rely on IT departments for support, they are seriously underestimating IT costs.  One look at IT salaries makes it clear that IT staff time is very expensive, and usually spread very thin.  The cost of IT time, and the cost of response delays and the disruption in services when busy IT staff are used for support, are potential costs often overlooked with the build option.  (For more on Costs, click here.)

For anyone considering building a case management system, or modifying an existing system that was built from scratch, we strongly recommend you read the article in detail and review the references provided. 

Key Points:

Highest costs in development - The largest portion of the cost of a custom built application does not occur in design or programming costs, but after the application has been installed.

Higher costs overall - The lifetime cost of a custom built application can easily exceed twice the cost of a commercial application.