Date Published March 29, 2018 - Last Updated December 13, 2018
With IT shops under increasing pressure to align with and ultimately integrate into the business, IT needs practical technology to support their ITSM journey. After all, service management can’t exist in large organizations without some level of automation to manage the complexity.
Today, many organizations are finding themselves stuck with expensive, cumbersome, inflexible and over-customized on-premises ITSM solutions that have become part of the woodwork of IT and represent more of a risk than a benefit. In order to integrate IT with the business, IT leaders need to bring IT around to a more business-like way of thinking—a top-down view focusing on business outcomes, with the technology taking the role of enabler, not dictator.
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Cloud computing and SaaS, as an application of the Cloud paradigm, is enabling this shift by allowing organizations to outsource the burden of managing infrastructure and technology to third-party organizations, freeing them to focus on gaining value without the overhead—making organizations more agile and resource-efficient.
However, the legacy on-premises model for purchasing technology still has a strong cultural grip on the IT community. Organizations are starting to accept the idea that ownership of software has no intrinsic value (yet many disadvantages), and the SaaS delivery model can give them access to the technology they need without compromising agility, security, and budget.
Naturally, organizations want to compare the value and costs of their current on-premises solution to SaaS solutions on the market as objectively as possible.
Measuring Total Cost of Ownership (TCO) of SaaS |
| License & Support Costs | Direct Costs Billed by the Vendor |
| Supporting infrastructure |
Dedicated servers are easier to price, but if your ITSM solution is living on a shared server, it is much more difficult to accurately price this aspect of the total cost. |
| User costs |
Looking back at the number of licenses you own will give you a solid figure for the actual cost, but this is also an opportunity to review license capacity issues. How many actual day-to-day users are there vs. paid licenses? Could the cost be reduced by rationalizing unwarranted dedicated licenses into more concurrent licenses? Calculate the license cost based on these changes and use this as the actual license cost, as this is what it should be if you should choose to remain with your current solution. |
| Administration staff costs |
How many people, in terms of full-time equivalents (FTEs), does it take to administer the system? Reducing the administration burden by just one FTE represents a significant cost saving. |
| On-boarding and training |
What does it cost you to get a new user up-and-running and productive? Many service desks have a high staff turnover, so this can be a significant hidden cost. For ITSM tools with a long learning curve, the cost of training and ramp-up to productivity can be significant. |
| Upgrade cost |
It is difficult to price a future upgrade, so look back at your last upgrade project and use the documentation to estimate the direct cost and effort cost of the project (e.g., internal man-hours and consultant services). Identify any impact of the upgrade to the business and attribute dollar values to this. |
| Roadmap cost |
Predicted cost of implementing remaining processes to complete your ITSM roadmap. Will it be easy, or slow and expensive? Will consultant services be required? |
| Vendor management |
Effort and costs relating to license management, organizing training, consulting services, enhancement requests, and roadmap meetings. |
Quantifying the costs of an incumbent toolset is more difficult than it seems, and calculating value objectively even more so. In all but the most mature organizations, it is difficult to quantify value beyond direct cost saving; putting a finger on the value of improved productivity that has stemmed from a single application is a major challenge with many hidden factors.
The deep capital expenditure associated with on-premises applications makes building a business case a necessity. As a large investment, the CEO and CFO must be satisfied that the investment will return value before budget can be signed off, presenting a barrier to accessing new technology in an environment where budgets are tight and the focus is firmly on cutting costs.
If your organization is in desperate need of new ITSM technology and your CFO won’t release budget, SaaS is an option.
If your organization is desperately in need of new service management technology, time spent building a business case can seriously hold up your ITSM roadmap.
With 70% of CFOs stating that they do not see a definite return on investment from IT budget, getting capital funding is becoming increasingly difficult, and the answer is often "No.”
With SaaS, technology is rented on a pay-as-you-go basis, meaning the cost of technology can be absorbed by the operation budget, below the radar of the CFO and CEO. Acquiring technology via the SaaS model is an effective workaround to the ”no budget” problem. Of course, the cost of a SaaS solution may not always fall at a lower level than your existing toolset. But if your organization is in desperate need of new ITSM technology and your CFO won’t release budget, SaaS is an option.
SaaS vs. On-Premises—At a Glance |
| Feature | SaaS | On-Premises |
|---|
| Cost Model |
Simple, pay-as-you-go, per-user charging. |
Complex licensing, maintenance, and support fees. |
| Total Cost of Ownership (TCO) |
Predictable, low cost. Savings of up to 50% can be made when replacing an incumbent on-premises solution. Release funds for new IT projects or core business investment. |
Unpredictable cost burden on top of license costs—implementation, administration, maintenance, upgrade, customization, consulting services, re-implementation.
|
| Ownership |
Rented |
Owned |
| Investment |
OpEx only. No heavy upfront investment, meaning no business case is necessary. |
Large initial CapEx investment, plus on-going OpEx costs, meaning a time-consuming business case project is necessary. |
| Infrastructure |
Zero infrastructure—bandwidth and browser-capable devices is all you need. |
Data center servers, application servers, databases, standard-build desktops and laptops. |
| Implementation |
Online implementation only. Quickly configure the system to suit your organization’s needs. |
Heavy-weight implementation involving technical infrastructure, change management, software rollout, and extensive testing. |
| Application Management |
Light: Administration and configuration only. |
Heavy: Administration, configuration, customization, upgrade projects, and patches. |
| Scalability |
Add/remove users at will. |
Slower scalability through vendor account management process. |
| Security |
Being business-critical to SaaS providers, security is tighter than most on-premises systems. |
You maintain security and responsibility for any breaches. |
| Power Usage |
Minimal: User desktops, laptops, and devices only. |
Significant: User machines and infrastructure in the data center. |
| Mobile Support |
Anything with a browser platform. |
Reliant on availability of proprietary apps for each platform. |
| Vendor Lock-in |
Change vendor easily and with little loss of investment. |
Vendor strategy is based on locking you in for years. Switching is likely to be slow and expensive. |
| Disaster Recovery |
One less application to worry about. No supporting infrastructure to replace. Switch to an alternate off-site service desk in seconds. |
Re-implementation of supporting infrastructure required—not ideal when the operation of the service desk is business critical during a disaster. |
| Market Availability/ Barriers to Entry |
Enterprise-class ITSM technology becomes within the reach of all organization sizes and budgets. |
Cost and resource requirements preclude all but the largest businesses from owning enterprise-class ITSM technology as an on-premises option. |
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Axios Systems is committed to delivering innovative IT Service Management (ITSM) and IT Operations Management (ITOM) solutions that help customers not only improve their infrastructure operations, but also enhance service delivery across business functions, including HR, Facilities Management and Finance. Axios is recognized as a world leader by leading analysts and its global client base, with a 100% focus on service management technologies.