September 27, 2011Doug Hadden
Doug Hadden, VP Products
Does Enterprise Resource Planning (ERP) software have economies of scale that results in lower total costs to government? I suggested in a previous posts why ERP vendors do not have economies of scale. Is this true or just “truthiness”?
The move to shared services for financial, budget and civil service management in government has had mixed results. Does FreeBalance or top tier ERP have a lower TCO? Which solutions have better value?
International Market Results
FreeBalance competes internationally. Most international governments release tenders for turnkey solutions with a 5 year total cost of ownership. These are fixed prices that includes most of what would be considered in a TCO calculation:
- Software licenses
- Implementation and training costs
- Support costs
- Equipment (usually all computers and networking, but not always)
These systems are typically “whole of government” – what we call “shared services” in other countries. Many countries release the prices when bids are opened. I have tracked these prices since 2006. The chart below compares the price for bids that included the 2 top tier ERP manufacturers compared to FreeBalance.
- The average top tier ERP TCO is 191.97% of the FreeBalance price.
- There have only been 3 times in which the bid price from a top tier ERP bid was less than FreeBalance. One of those did not include the 5 year calculation.
- FreeBalance has consistently been evaluated as having a higher value based on different formulas used by governments
Lessons for Shared Services
- Software prices represent a minimal cost relative to implementation and service
- ERP software often requires more hardware to operate
- Complex software is more expensive to maintain and adapt
- Not included in the TCO calculation is upgrading – this is where our customers see a significant difference because of our ability to progressively activate
- Shared services governance must include vendors who should commit to features and improvements, otherwise governments are required to customize – effectively becoming software development organizations
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