Managing Software Assets

Managing Software Assets Software costs represent one of the largest information technology expenditures in most firms. Amounting to more than double the expenditures for computer hardware. Software represents another major technology asset. At many points in their careers, managers will be required to make important decisions concerning the selection, purchase, and utilization of their organization’s software assets. Following are some important software issues of which they should be aware.

Rent or Build Decisions: Using Application Service Providers Technology expenditures will increasingly focus on ways to use software to cut down on “people” costs as opposed to computer hardware costs by increasing the ease with which users can interact with the hardware and software. More organizations are using software packages, fourth-generation languages, and object-oriented tools because such software lowers “people” costs by reducing the need for custom-crafted software written by skilled computer programmers. Renting software and software services from other companies can lower some of these “people” costs even more.

Application Service Providers (ASPs) Chapter 5 described hardware capabilities for providing data and software programs to desktop computers over networks. It is clear that software will be increasingly delivered and used over networks. On-line application service providers (ASPs) are springing up to provide these software services over the Web and over private networks.

An application service provider (ASP) is a business that delivers and manages applications and computer services from remote computer centers to multiple users via the Internet or a private network. Instead of buying and installing software programs, subscribing companies can rent the same functions from these services. Users would pay for the use of this software either on a subscription or per transaction basis

For example: Companies can pay $5 per month per user Plus ( a one-time start-up fee of $5,000) to rent travel and entertainment (T&E) expense reporting software from ExpensAble.com instead of buying and installing T&E programs on their computers. The ASP creates a single solution that can be rented, replacing all or part of a customer’s IT infastructure.

The ASP’s solution combines package software applications and all of the related hardware, system software, network, and other infrastructure services that the customer would have to purchase, integrate, and manage on its own. The ASP customer interacts with a single entity instead of an array of technologies and service vendors.

application service provider (ASP) Company providing software that can be rented by other companies over the Web or a private network The “timesharing” services of the 1970s, which ran applications for functions such as payroll on their computers for other companies, were an earlier version of this application hosting. But today’s ASPs run a wider array of applications than these earlier services and deliver many of the software services over the Web. At these Web-based services, servers perform the bulk of the processing and the only essential program needed by users is their Web browser

The following Table lists examples of ASPs. Large- and medium-size businesses are using these services for : enterprise systems, sales force automation, or financial management whereas small businesses are using them for functions such as : invoicing, tax calculations, electronic calendars, and accounting. Employease.com, described in the chapter opening vignette, is an ASP providing human resource software.

Companies are turning to this “software utility” model as an alternative to developing their own software. Some companies will find it much easier to “rent” software from another firm and avoid : the expense and difficulty of installing, operating, and maintaining complex systems, such as enterprise resource planning (ERP). The ASP contracts guarantee a level of service and support to ensure that the software is available and working at all times

For example, Telecomputing ASA charges $349 per seat per month for a three- to five-year contract that includes a guarantee of a 99.7 percent service level. Today’s Internet-driven business environment is changing so rapidly that getting a system up and running in three months instead of six could make the difference between success and failure. Application service providers also enable small and medium-size companies to use applications that they otherwise could not afford

Companies considering the software utility model need to carefully assess application service provider costs and benefits, weighing all management, organizational, and technology issues. In some cases, the cost of renting software can add up to more than purchasing and maintaining the application in-house. Yet, there may be benefits to paying more for software through an ASP if this decision allows the company to focus on core business issues instead of technology challenges.

Software Maintenance After software has been created for the organization, it usually has to be modified over time to incorporate new information requirements. Because of the way software is currently designed, this maintenance process is very costly, time consuming, and challenging to manage. In most information systems departments more than 50 percent of staff time is spent maintaining the software for existing systems Exampl : At the end of the millennium, an unusually large maintenance problem called the Year 2000 Problem emerged. The Year 2000 Problem, sometimes referred to as the millennium bug or the Y2K problem,

Management Decision Problem Evaluating an Application Service Provider Your company has grown from 40 to 200 employees in the past two years. All of your human resources record keeping, such as processing hired and terminated employees, documenting promotions, and enrolling employees in medical and dental insurance plans used to be performed manually, but your two-person human resources department is swamped with paperwork. You are looking at two options to automate these functions. One is to purchase a client/server human resources package to run on the company’s midrange computer. The other is to use an application service provider that runs human resources software over the Web. The company’s human resource department has PCs with Web browser software and Internet access. Your information systems staff consists of two people

The human resources software package that best fits your needs costs: $9,500 to purchase. One information systems specialist with an annual salary of $65,000 would have to spend 4 hours per 40-hour work week supporting the program and applying upgrades as they became available. Upgrades cost $1,000 each and the vendor provides one upgrade every year after the first year the package is purchased.

The application service provider you have identified charges $1,500 to set up the system initially and $5 per month for each employee in the firm. You do not need to purchase any additional hardware to run the system and the vendor is responsible for supporting the system. 1. What are the costs of each option in the first year? 2. Which option is less expensive over a three-year period? 3. Which option would you select? Why? What factors would you use in making a decision? What are the risks of each approach?

Selecting Software for the Organization Although managers need not become programming specialists, they should be able to use clear criteria in selecting application and system software for the organization. The most important criteria are as follows. Appropriateness Efficiency Compatibility Support