Wouldn’t it be interesting if the next time a football team purchased a new star striker, they were offered the deal as either an on-premise or Scorer as a Service investment? If they had the option to buy him/her outright, with one large fee that covered all the costs for training, insurance, professional development etc. – alongside the responsibility of ensuring adequate facilities and team integration?

Or to only pay for ‘usage’ – to have the player arrive on the day of each match, and to commit to an agreement that involved the payment of a smaller but regular fee across a set number of seasons?

2 ways of calculating value

Both options have their merits. On-premise allows the manager to know the asset in-depth, to have it permanently available for working on specific skills. Whereas the ‘pay as you play’ model places the spotlight on output in terms of results and attributes.

The final decision will, therefore, be based both on operational metrics (which of the two approaches will enable the overall team to play best), and financial metrics (which one fits our budget and offers the best value over time).

Real-world implications

Essentially this is the same reasoning many CFOs apply to software investments. Yet when it comes to the cost side of the equation, software as a service (SaaS) has the advantage as it’s perceived to be the cheaper option.

But is it? To answer that question, you should examine these 5 considerations:
 

Consideration #1: Measuring value over time

SaaS is obviously a cheaper upfront cost, with lower CAPEX and the ability to spread payments – which also helps to reduce risk. Yet CFOs also need to take into account the net present value (NPV) of a SaaS subscription – to ensure they fully understand the nature of their investment.

For example, an on-premise license could cost €1 million with yearly licensing costs of €75,000. The SaaS subscription, on the other hand, comes in at €400,000 per year. So SaaS sounds cheaper, but extend this over a four-year period and the difference becomes significantly less pronounced.
 

Consideration #2: The infrastructure conundrum

SaaS does deliver obvious cost savings, but CFOs often struggle to fully quantify what these are. That’s because part of the promise of SaaS is a reduction in IT resources – with an external supplier taking on responsibility for hosting, security etc.

That said an IT function is still needed to perform various configuration, testing, and maintenance tasks (and ultimately for ensuring the cloud deployment is running effectively). All of which makes it difficult to accurately predict total cost savings.


Consideration #3: The cost of customisation

In the early days of SaaS, a lack of flexibility in customising the service was seen as its Achilles heel, which in turn has led to a generally false perception regarding TCO (that it is lower because customisation introduces cost).

On-premise systems are currently more customisable, but the act can also help introduce additional cost both at the point of implementation and when it comes time for a system upgrade to a newer version (more on that later).

As SaaS becomes a more mature proposition, it has become easier to tailor services to individual clients. Importantly, it’s also designed with easier upgrade processes in mind, which should result in lower TCO – and the latest offerings to emerge from leading vendors are helping make this a reality.
 

Consideration #4: Keeping things fresh

It’s a fact of life that on-premise systems require upgrades, which are typically conducted by organisations every 2-4 years. Such an activity introduces cost: the cost of the upgrade, of potential new hardware, of upgrading customisations, and possibly new software licenses.

By comparison, SaaS systems follow a far ‘lighter’ upgrade path. Indeed, some vendors now refer to updates rather than upgrades, with many taking place over night without any associated costs.
 

Consideration #5: Agility is key

One final question to ask is: “but what happens if the business experiences rapid or unexpected growth/shrinkage? Both scenarios impact the need for software, and in turn place the emphasis on the much needed flexibility contained within your licensing agreements.

Obviously, SaaS is a big winner here as most vendors will allow for an increase or decrease in subscription fees. Whereas with on-premise it’s usually a lot harder to recoup budget as this will have been sunk into the initial CAPEX.

Make sure to hit your mark

So whether it’s the latest football talent or a much needed software investment, there are many factors to consider when calculating your TCO. These 5 considerations are intended to highlight some of the key points to explore during any initial evaluation – with the ultimate intention of preventing any high profile own goals.

 

 

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