Packaged software versus inhouse development Thecaseforthesoftwarehouse

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DAVID DRYDEN

f the development of a suite of computer programs takes one person, working five days a week,

30 years to complete, how can the same task be completed with more people at a lower cost and with a, better result?

First, let’s look at the cost in detail. For developing a new pro~amm~g application, an average ‘per man’ cost of a team including senior analysts, project leaders and junior programm- ing staff is now more than $2 OOO/man month at today’s salaries, taking into account computer time and accom- modation. That’s not cheap.

It will take that team about three man years to develop even a simple payroll package, and around nine years for a payroll of medium complexity. Even at the average per man price quoted above the cost curve mounts quite dramatically as the complexity increases - ;E72 000 for a simple

Abstract: Buying packaged software from u software house rather than dewezoping it inhouse is cheaper and more e&%ient. Software houses are more able to make required changes.

Keywords: data processing, computer software, programs.

David Dryden is a marketing manager with Peterborough Software Ltd.

payroll rising to E216 000 for the more difficult payroll.

One organization that had a particularly complex payroll came to the conclusion that it would require more than 30 man years to do the job. At $2 OOO/man month, that’s nearly three quarters of a million pounds. This exponential rise in costs can be seen quite clearly from Figure 1.

The solution that more and more companies are turning to is to put the job in the hands of an organization which can spread its costs widely - the package supplier.

Staff shortage

These costs are the key to the dramatic growth that is now taking place in sales of packaged programs. Traditionally the large computer user has relied on his inhouse computing staff to develop the most commonly used application software. Today, however, computer users are faced with a grave shortage of experienced programming staff, and a consequent escalation in the salaries they must now expect to pay.

How many small organizations could contemplate the expense of developing complex software or hope to do the job as well as a software house that can develop the same program on

20 0011-684X/82/04002(M2503.00 Q 1982 Butterworth & Co (Publishers) Ltd

Simple Medium Complex

F&we 1. The exponential tie in costs . . .

Maintenance costs

-E 216000

f700 000

behalf of perhaps hundreds of customers?

Let’s look again at our example above of a payroll of medium complexity costing &216 000, and compare the cost of buying a similar package Corn a supplier. If we superimpose the package costs on our previous graph, the comparative difference becomes obvious (Figure 2).

On a more general note the package supplier aims to provide a product that is sufficiently flexible to adapt to a user’s constantly expanding and changing requirements. Superficially, the user might think himselfin the best possible position to define his needs, but experience proves otherwise.

The first time computer user is particularly vulnerable to this mis- conception. Most organizations start off with an incomplete idea of what the computer has to offer. The result is that specially tailored inflexible programs are written, which are quickly overtaken by events.

Not only does the world change, but so also do user expectations. The longer a computer is installed the more the user will perceive new possibilities for its use, possibilities that were not even dreamt of when the machine first

data processing

systems

f216000

f 700 000

Package cost of Cl9500 basea an 5 years rental payments.

Figure2 . . . compmed evitk package costs

arrived. An organization might even find its sofiware looking out of date at the time of implementation.

On the other hand, the package company, with its view and experience ofa large number oforganizations, is in a good position to anticipate future requirements, and to structure its software accordingly.

This means that in many cases a package will provide a customer with growing room, and changing require- ments can often be met without the need for program changes.

Package benefits

Cost and flexibility are not the only factors involved. By leasing or buying a package the computer user can gain from a whole string of benefits.

Let us return to the example of payroll again, and go back to the time of the Budget. For most people the Budget provides a few brief days to moan about the price ofliving, but for a company payroll department it can be a nightmare.

The 1982 UK Budget was not quite of this order, but it most certainly caused a few headaches. Changes were made in personal tax allowances and in

VOW 24 no 8 October 1982

both employers’ and employees’ national insurance contributions. Contrary to a general belief that reasonable notice is normally given, on this occasion changes had to come into operation within one month of their announcement.

For those organizations fortunate enough to be leasing a package these were not problems to be worried about.

The specialist package house is geared to implement changes quickly. It is able to devote more time to keeping in touch with legislation changes.

UK legislation

A test of this will be the implementa- tion of the proposed changes to statutory sick pay. For a software supplier with a package that has been designed to allow for major change as well as the standard tax and national insurance, these changes can be incorporated easily. For the rigid type of payroll package, SSP will mean a major restructure or a very limited application.

The employers’ guide to SSP is not likely to be published until the last minute. Although the actual date ofthe implementation is April 1983 payroll changes to historical recording will have to be implemented and in use by January 1983 to calculate any subsequent entitlement effectively.

The penalties for not implementing legislative and other necessary changes can be particularly severe where pay and personnel are involved.

While on the subject ofgovernment legislation - how many computer users will welcome the proposed legislation on data protection when it finally arrives? There certainly won’t be much enthusiasm from those who will be faced with implementing changes inhouse.

Implementation

A user who has decided to develop his own software will also find difficulty in competing with the high speed of

~plementation that a package offers - usually a matter of weeks. This is not only because the package will be relatively bug free, but because the supplier in many cases offers a high standard of formalized education to the user. This often takes the form of an initial seminar backed up by refresher courses, which are essential for users with a high staff turnover.

Education is just one part of the wider problem of the support that is necessary to keep a computer system running. Again, a vendor serving a large number ofuser sites can make far more efficient use of resources and offer a service that is difficult to match inhouse.

Finally, a consideration that must be permanently at the back of every data processing manager’s mind, is whether the work that is being handled by his systems analysts and pro- yammers is making the best possible use of their skills. Certainly for most common application software, such as payroll and accounting, inhouse development is a poor use of highly expensive skills.

Any medium or large organization with a sizeable computer installation would be better using its program- ming staff on new projects, such as distributing computer power further afield in their organization. They should not set to reinventing the wheel. After all, what is the point - the reinvented wheel will probably be less satisfactory and certainly far more expensive than the package solution. (7

Do you agree with David Dryden that buying packages from software houses is better than inhouse development> If you believe there is a strong case for developing software inhouse, we would like to hear from you. Write to Data Processing, PO Box 63, Westbury House, Bury St, Guildford, Surrey GU2 SAW, UK Comments will be published in a titure issue.

Peterborough Software (UK) Ltd, Borough House, Newark Road, Peterboraugh PEl 5YJ, UK. Tel: (0733) 41010.

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