Custom software offers a way to create a competitive edge while allowing organizations to differentiate how they serve their stakeholders. Custom software are utilized by McDonalds, Google, and Apple to create industry leadership. One of the key factors to determining a custom technology investment is feasible is the cost.
The cost of custom software is determined by upfront development costs and total cost of ownership. Up front cost can range from $10,000-$250,000* and directly impacts the future cost of maintaining and operating the application. Organizations are advised to balance the cost of both upfront and total costs when determining the cost of custom software development. Leading organizations however measure their investments based on the value provided by their software including revenues gained or cost savings.
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What is the value of custom software?
In a market full of ready to purchase apps and custom software, why would an organization want to write their own custom code?
Custom software enables organization to utilize their insights leading practices in customer service into repeatable, automated, and at scalable processes. This allows for an unprecedented level of tailoring and focus in how organizations serve their most important stakeholders.
McDonalds has been using a point of sales (POS) system to serve its customers for decades, in 2008 the Golden Arches decided they would handle their own POS software development in house, ensuring that POS technology would support its’ missions rather then contend with other clients served by a SaaS(Software as a Service) vendor(source).
McDonalds uses custom software to lead their industry
McDonalds remains a leader in their market by creating a simple and intuitive system, allowing employees with minimal training to quickly learn and become effective team members. By having choosing to invest in custom technology, they doubled down on POS technology by being the first fast food chain in Canada to offer self serve kiosks nationally (source).
The self-serve kiosk is just one way McDonalds is moving towards being more customer centric, a buzz word often touted. But behind this term requires significant investment and discipline.
During a press event in New York McDonalds’ CEO Easterbrook said
“for the best part of our 60 years we’ve asked customers to fit around our business model.” Now the company is adapting its “business to fit around customers.” (source)
Custom software allows an organization’s service model to fit around the people it serves rather than the other way around. For organizations who are intent on being customer-centric or agile, this is where the talk meets walk.
How much does custom software development really cost?
There are two major components to a custom software development costs:
- Upfront costs – the cost of initial design, develop, test, and deploy your software: lowest prices, range from $10,000-$250,000*
- Total cost of ownership – the cost of operating, enhancing, and retiring the legacy software: inversely proportional to upfront software development costs all things equal
For the technically astute there is a clear trade off between the two. The less you pay upfront the more you will pay later on to deal with enhancement, scalability, fine grain user experience, or performance issues. It’s important to consider both aspects should an organization seek to create robust custom software.
*Stats are based on clutch.co Canadian custom software development firms, and relate to upfront costs of development.
Balancing upfront and total ownership costs
Prioritize features – They key in balancing costs lay in understanding key features that can provide the most return to the organization or value to users. Prioritizing them in a timely manner so that high priority features are implemented earlier. This approach tends to reduce cost while increasing the relevancy of a custom software.
Focus on reusable functionality – Focusing on enterprise requirements rather than the needs of a single department will also lower total cost of ownership. This is accomplished by reducing rework and short sighted designs to be broadened and allow for company wide usage.
Organizations can save 30% overall when using reusable code – Creating software that works for an organization rather than a department is intuitive but the magnitude of savings should not be glossed over. Master Systems Architect of Lockheed Martin relays that there is an 80% cost reduction in effort by using reusable code, versus a 50% increase in costs to write reusable code, which results in an overall 30% decrease in development costs based on data (source).
Work with near shore remote developers – This approach provides an optimal balance given the right service provider, for top technical capability while managing costs. An increasing number of eligible and talented professionals seeking consulting work this is an often under-utilized method.
Focus on requirements and design – Without a clear vision of what is being built, its purpose, and how it integrates into your current technology ecosystem, total costs of software will consistently increase costs.
Why is there a range for software development costs?
There are many factors that can affect the cost of custom software development. Knowing what needs to be accomplished and when can help manage costs on a custom code project. While not having the right change management or support can also increase costs of projects in general.
Each industry also poses unique challenges and opportunities for custom software or IT projects. These are often unaccounted for during discovery phases and result in significant rework and thus unexpected costs. Here are some common industry challenges for technology enabling core mandate processes:
Mining – mining or resource extraction often requires technology to function in remote locations and may include the management of human vitals
Healthcare – managing patient and their data drives requirements for privacy, security, performance, and patient outcomes; often times these features are an after thought or developed in a reactionary manner
Banking – data management and core banking transactions create prominent issues in managing a single view of the customer or allowing modern systems that function as enterprise software rather than a silo
Construction – creating visibility into a national construction enterprise is difficult as teams manage cost, schedule, and scope for billions of dollars of real estate development projects
Brands that utilize custom software
Despite the costs, industry leaders and Fortune 500 brands remain committed to the paradigm of custom software for its core businesses. Here are a sample of brands that utilize custom software as part of their core or auxiliary business areas:
Disclaimer: the following brands listed do not promote or share the views of Mindfield Consulting and are referenced as part of fair use practices.
The better way to estimate the value of custom software
Technology leaders should consider other factors aside from cost when determining a decision for investment. For example if an application can allow an organization to create new revenue streams or cost savings from avoiding manual work by employees, and this benefit is valued at $25,000. Given a lifespan of 6 years or more the application would then be worth $300,000 to a company.
Leaders and vendor managers may sometimes get side tracked by the cost of custom software, but in reality the focus is not the cost but benefit it provides to the organization. It is important to start with the business outcome first rather than estimating an investment based on a budget and then working with people and technology to achieve these outcomes.
What it all boils down to… the right people and technology
Custom software is a decisive action that represents a company’s dedication to offering a competitive service unlike others in the market place. The outcome of custom software development, done well is a catalyst in helping companies become industry leading. Choosing the right people and technology will be the decisive factor of whether this technology investment will make an impact. Organizations continue to struggle with finding the right technology or people to deliver it.
Mindfield Consulting has been delivering mission critical software for over two decades and helps organizations meet their most pressing challenges and opportunities with the right people and technology. The difference Mindfield offers is the ability to business case, delivery, and operationalize a strategic vision enabled by technology.