“Most analyses conclude that between 65 and 80% of IT projects fail to meet their objectives, and also run significantly late or cost far more than planned.”
Portland Business Journal
If your Information Technology (IT) budget includes replacing legacy software, it should provide for:
· ‘All’ of the cost beyond just the software
· The ‘soft’ cost - i.e. your time and resources
From my experience, depending on the size and scope of the project, a successful conversion typically will take 3-6 months longer than expected and be 30-40% over the initial budget. Converting 20-30 years of historical transactional data is expensive and is more than a “cut and paste” procedure.
When working with clients on replacing software, I always start by emphasizing that they need to have a realistic vision of the process. As with other major projects, advisors need to plan for hidden costs and unexpected events that will arise and impact the project’s overall success.
I’ve participated in many IT budget processes in my career. While being an accountant helped, it doesn’t take a CPA to understand that a successful budget includes realistic thinking and business planning.
To help you ensure a successful conversion, here are 5 mistake to avoid along the way:
- Mistake # 1: Viewing the line item as an expense, not an investment. From the moment you refer to technology as an expense, you minimize its importance to your firm’s overall success and will be focused on the least expensive solution rather than the best solution to achieve your goals.
- Mistake # 2: Underestimating the new software’s cost. The base price for the new software probably doesn’t contain all the features needed and suddenly you find that you need to double the budget line item.
- Mistake #3: Budgeting only for the cost of new software. This is a big one - there is more to the process than just purchasing new software. You must convert your data to the new technology and the conversion investment can be time consuming and expensive. Also, many firms budget for conversion erroneously, based solely on discussions with the vendor’s sales person.
- Mistake # 4: Omitting both software platforms license fees. Firms don’t realize that for a period of time – as much as 6 months or longer - they will need to pay for the existing and new software license fees while performing parallel testing, customizing the software, and determining the appropriate point of time to transition the firm and clients to the new technology.
- Mistake # 5: Ignoring the human capital component. You must also consider the investment of you firm’s internal resources and time necessary to implement the new software and convert the data. Relying only on the vendor will take you so far and you will need to dedicate some level of staff resources.
Ultimately, you are responsible for the project—not the vendor. Replacing legacy software is a major undertaking and requires realistic thinking. Whether you’re managing the project internally or working with outsourced expertise, make sure to factor in all the hard and soft costs so that you end up with a budget that closely resembles the actual cost.
For more information on technology conversions, read Why Conversions Fail