Software purchase
First time Software Purchase? Then this is a must read for you. We will talk about software price. No, I am not going to discuss how much software cost. We will not even talk about why they cost so much. We will just get you into understanding what all goes into cost of a software.
Let us begin with saying software purchase is not like purchasing any other consumer durable. Now, before getting into talking about pricing to a software vendor, lets get to knowing some ground reality.
If a software is priced at, let's say, INR. 2,00,000. Now if you think, you just spend the 2 lakhs, you will have the nice software in hand and then live happily ever after… sorry it doesn't happen that way…
-
Software prices provided first time is normally the 'price of the core or basic modules' for a single User license. So here starts the confusion… What is now the basic modules or core modules.. Every software seller decides certain modules as core. Now if we are talking about Accounting software the following modules may form the basic module
- General Ledger
- Accounts Payable
- Accounts receivable
- Order entry
- System
So it depends, sometime for the same core modules you might get additional functionalities free. And if you need more modules they are charged extra.
-
Now coming to the user licenses, the price of the software is normally for a single user license. If you want 10 people from your company using the software then you have to talk to the vendor for 10 licenses. But wait, if a single licence; is INR 2 lakhs, it does not mean it will cost you 10 times to buy 10 licences.
Normally licences are priced single user, upto 5 users, upto 10 users, etc. Actually the more users a software can be geared upto the bigger the application.
If the software system can be geared only
- Upto 5 users the software may be a very small software.
- Upto 10 users the software may be a small software.
- Upto 20 users the software may be a medium sized software.
- Upto 100 users the software may be a large software.
- Upto 250 users the software may be a very large software.
- More than 250 users then the its an ENTERPIRSE APPLICATION.
Now the above will be applicable to a client / server application. There is much more to add to the concept of users and licenses, which we will talk during our next softnews letter. Web based applications has a totally different workout. We will talk about web based application some time later.
So there ends the talk about the 'core modules and licenses' (licenses to be cont…) - The next cost which goes with a software is the 'implementation cost'. The reality is that some software implementations cost as much as the software itself. I really mean sometimes if the software cost is 2 lakhs, the implementation may also cost 2 lakhs. Funny? No actually, there is much more to implementation than coping a software from the CD rom drive to your hard disk. Implementations includes installation, configuration, user creation, first level training, compile and input data, create report format, train the trainer training, etc. Training is the most important part of implementation process. There are many software failures due to inadequate training.
-
Other than the above costs 'customization' is another cost to be spoken about. First point is to select a software which meets at least 85% of your requirements. And also software should have the capability to customize and tune the software to meet 90-95% of your needs. Any additional customization is normally charged.
Other than the above costs, software attract other expenses during its lifetime, most important ones are briefed below: - Support after the warranty period. It is sensible to look into support cost at the time of procuring a software. Normally software come with Warranty generally for a year. Some vendors provide an extended warranty. More on warranty in the next softnews letter.
-
Next consideration would be for the cost of upgrades. Throughout the life of the software the software undergoes a lot of changes in the form of patches, builds & upgrades. Support becomes a very important factor as the patches and builds came as a part of the support contract. Upgrades, in the form of new versions will be released. Though new versions are not a 'must be procured', it will be useful to have knowledge of the same.
In some cases cost may be incurred if, from your side, you decide to upgrade. E.g.: Move from SQL database application to a Oracle database application.
Other than the above important cost factors - hardware, database, report writing tools, etc., will have to be budgeted in accordance with the application purchased.
I hope you find these insights useful and I was able to throw some light. Next softnews letter will discuss the following:
- users and licenses
- warranty
- And much more.
|