Going Outside to Cut TCO

By Thomas Hoffman

December 2, 2002 12:00 PM ET

Computerworld - When IT managers evaluate the costs of buying packaged software, they tend to focus on upfront and recurring licensing costs and the costs of maintaining or customizing an application. But those costs are just the tip of the iceberg when it comes to the total cost of ownership (TCO) for software, according to Jeff Beinke, vice president of product strategy at Employease Inc., an Atlanta-based application service provider (ASP) for human resources and benefits administration systems.
Other costs that need to be considered, says Beinke, include the costs of any additional hardware needed to run the application, a database to support the software, and WAN and LAN connectivity, not to mention the costs associated with personnel to maintain all of that equipment.
The upshot is that the total cost of an application can eventually amount to three to five times as much as the license fee, says Beinke.
Employease's ASP model appealed to Post Properties Inc., an Atlanta-based apartment complex management company that oversees more than 30,000 units nationwide. The company was able to save $100,000 in its first year of using a self-service human resources system and expects to save another $100,000 annually by eliminating the need to print employee and benefits information that's housed on the system, says Linda Ricklef, director of benefits and employee relations. In addition, Post Properties no longer needs to have a dedicated IT or benefits person to help support its mainframe-based system, says Ricklef.
Post Properties, which also has its payroll system wrapped into the Employease service, pays between $4 and $8 per employee for its 1,200 staffers to use the system, says Ricklef. With the mainframe-based human resources and benefits system Post Properties once used, "we could never adequately forecast what our costs were going to be, plus we felt that we were being nickel-and-dimed all the time" from the software vendor for add-on costs, she says.

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