Thursday, March 17, 2011

Irresponsible IT Spending by the Government - You Decide

I can already envision the hate mail that will be forthcoming after this blog post sinks in.  But what the heck, government spending is on the top of the list of reasonable thinking citizens these days, so the topic is fair game in my book.

We, like many of you in the IT sector receive RFP's from our various government institutions. Having personally seen some of these RFPs, I am simply amazed at the continued out of control spending on IT initiatives when government spending should be dramatically cut.  But, the RFP's and no bid contracts for IT projects continue to freely flow in States that are for all intensive purposes, broke.

Here is a fair set of questions we should all be asking: Where is the money coming from to support the continued spending in On Premise IT solutions?  Why are hardware and software maintenance contracts for On-Premise IT solutions continually being renewed for IT On Premise hardware and software products that can very well be replaced with a fully capable, lower cost alternative?  Wouldn't you want your government officials looking at viable choices that can dramatically slash their spending habits for the benefit of the tax payer?

The way I see it, our government officials can either choose to save the tax payer large sums of money year after year by looking at an alternative or continue to needlessly spend the precious, limited dollars at the peril of the tax payer.   So you ask, what is the alternative in which I am speaking of?  Software as a Service or (SaaS).

Now the naysayers are already frantically typing away with all the reasons why SaaS and Cloud are not viable in the government sector: citing data security, physical security, firewall issues, ongoing costs, the current software provider doesn't provide their solution in the cloud - yada yada, yada. The fact of the matter is governmental bodies can save the tax payers real, substantive tax payer dollars on  many different fronts without sacrificing features, functionality, security, accessibility, scalability, etc.  They just need to make extra effort to actually look for alternative solutions in the marketplace.

As a result of moving to SaaS based IT solutions, they more than likely will achieve entirely new levels of cost savings and new application functionality with SaaS alternatives than any on-premise based solution they have today.  Please, don't waste your time or mine trying to refute the facts, many white papers are readily available on the internet by respected industry giants that adequately address those subjects.

Mathematics simply will tell the story better than any crafty word-smithing.  Thank goodness mathematics are one of the subjects in the world that still remains on a solid footing.  Let's look at real life Total Cost of Ownership example -software and hardware deployment for a Document Capture solution to get my point across, though the exercise can easily apply to any application with some foresight.

When you look at TCO in the document capture market, the typical approach to breaking the initial CAPEX and Annual Reoccurring cost structure is a follows:

To help bring some clarity to an industry inundated with acronyms, I will provide you with some definitions:
  • # of Conc. Users – Total number of software licenses needed to support user community
  • Max IPY Page Vol - Some vendors charge on the basis of Images Per Year & cap their annual/monthly license page counts
  • Annual D.C. cost - Datacenter Charge backs from an outside IT infrastructure provider. 
  • Projected PSG – IT Professional Services Group charges that are assessed for outside IT consultancy contractor services.     
In this example, the customer is presented with the traditional option to continue to spend your tax payer dollars on annual software assurance and IT support contract for an existing document capture solution with an annual cost of $157,559.  Special Note: this illustration doesn't even address the required tax payers dollars to initially purchase the actual software application.  We are just focusing on the operational costs to support and maintain the application. Ouch.

First, notice the Year 2 TCO: $157k Annual Invoice conducted through an expensive and time consuming RFP process, and board approval process vs. $57k SaaS, Annual operational expense billed on a Monthly basis. As a tax payer, which option is represents the more fiscally sound decision and which would you prefer your governmental body to choose -$57k or $157k?

Second, take notice of the fact that there is the entire elimination of the annual data center cost!  That's right, there is no charge…$0.  Why?  Because the outsourced IT firm that was charging back the government to stand up, install, maintain, patch, hotfix, support, etc. the server infrastructure that was used to provision the on-premise IT system isn't needed anymore.  It is all managed by the SaaS provider who is the subject matter expert on the application.  The SaaS provider provides the infrastructure designed and optimized to support their system, thus, there is absolutely no need to pay a third party outsourcing provider.  So there is even more benefits than just the economic aspects.  Interesting thought isn't it?

Thirdly, let’s take a look at the first years cost: Monthly/Annual Cost + Annual D.C. Cost + Projected PSG Cost which = Year One TCO or $165,559.  Or, alternatively the government officials can choose the lower cost alternative of $44,757 + 0 + 24k = $81k.  Huh, the governmental officials have a choice to either spend $81k vs. $165k in the first year.  As a tax payer, which option would you like your governmental body to choose?  

So, the next time you are at your local county board meeting and / or you see a State or Federal RFP issued for IT products and services, you now know there are viable options to the age old out of control spending that has been occurring for decades - at least in the world of IT.  Write me back and let me know your thoughts!