We renewed our license for our 100K+ a year solution to manage all clients and severs in the enterprise. But we cannot migrate to the new version of the software. We have the license to the software, and the "new" hardware installed in the server room, but can't begin migration because of about 10k in SQL license and OS purchases required.
We've been waiting on what we call upper management for well over a year now to purchase all the required pieces, the decision to renew the license of the application took a year, the purchase of the hardware took another 8 months, and it's been 6 months and were still waiting on the needed SQL and OS licenses.
The delay is killing us, the current solution were on is nearly completely out of support by the company, the backup solution has been end-of-lifed and doesn't work on Windows 7 or 2008 R2. The hardware is over 6 years old and starting to fail. We do our best to keep this aging beast up and running but it's just a matter of time before it comes toppling down and there is no support to fix it.
This type of problem seems silly, we spent up wards of 150k to renew the applications license and buy new hardware but it goes unused because they forgot about 10k in OS and SQL license. But this type of problem happens all the time.
The real issue is that the tech department just assumes that the business end knows what they are doing when it comes to this purchase. They ask for the price on the application license and we give them just what they asked for. But from the businesses point of view they are asking how much will it cost to upgrade this software. So when we come back after the license is purchased and go, oh by the way we need 50k in hardware, and then again for the OS license and SQL, they suddenly don't want to pay anymore.
This is the Tech Departments fault, we should be smart enough to know the cost of Application is significantly greater than the licensing fees. These are all services that need to be provided on an on-going basis, they need to be maintained and upgraded on a regular basis. So any pricing presented for a service should be in the form of a re-occurring charge.
Use monthly, yearly, multi-year, etc doesn't really matter. As long as your presenting the cost of a given application as an on-going one.
A cost sheet for any given service might look like this:
| Up Front Cost for Renewal of Service (priced for 3 years) | ||
| Application License Renewal | $314,000 | |
| Hardware Purchases | $48,900 | |
| Windows Server 2008 R2 Std License | $2,600 | |
| MS SQL Server 2008 R2 Std | $5,230 | |
| Total Up Front Cost | $370,730 | |
| On-going costs not charged at renewal (priced for 3 years) | ||
| Maintenance and Support Provided by Third Rail Inc. | $35,000 | |
| Backup Service (estimated on 450gb of required storage) | $3,000 | |
| Estimated Power and Cooling Cost | $3,500 | |
| 24/7 Monitoring | $3,225 | |
| Estimated cost for next renewal | $339,000 (3 year) | |
| ---Billed Monthly at a cost of | $9,417 (a month) | |
| Total Maintenance Costs (over 3 years) | $367,725 | |
Now, clearly this leaves out a lot of detail but covers all the major sections to adding a server. This gives the business end a significantly better picture of what it will take to not only purchase this new software but also maintain it for the life of the license. If this is done for every service in the enterprise it gets a whole lot easier to budget IT, which if done properly should simply be the sum of all the services you have installed. Because the billing for any given service also includes the cost of the staff required to maintain it, as well as surrounding items like client machines for staff every 3 years, phone lines, supporting applications, etc. In fact some services will likely pay for other services, such as a service for Support and Maintenance of Client machines, would have the cost for the application used to manage those clients baked into it.
Doing financing in this way also allows for incremental pricing changes, you have to renew every 3 years and maybe you found maintenance on average was higher for this service, so you can calculate that number higher on the next renewal. Assuming you have 15-20 services you provide, it allows you to constantly re-calculate the budget, making it easier to keep on pace with a growing or shrinking company.
But getting this type of billing right is tuff to say the least, and many items have to be estimates, and things like labor costs over 3 years for a given server can be difficult to calculate. So I would highly recommend putting on the IT staff a dedicated IT Accountant.
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