The Bottom Line Counts

Factoring in productivity losses into company's TCO calculations for technology systems make business sense.

With law firms deploying multiple business systems – in addition to the traditional practice management systems (PMS) – there are substantial productivity losses that organisations do not always take into consideration when calculating the TCO of their IT applications. It is vital this element is factored in to ensure any negative effect – such as losses – can be kept under control if not eliminated altogether.

Analyst house, Gartner's definition of total cost of ownership (TCO) includes hardware and software acquisition, management and support, communications, end-user expenses and the opportunity cost of downtime, training and other productivity losses.

Firms, today, can truly reduce their TCO by adopting an enterprise resource planning (ERP) approach to technology adoption and business management. In doing so, firms substantially reduce their infrastructure requirements and the cost of maintaining multiple siloed systems; benefit from business efficiency and productivity gains; and enhance service delivery. All this materially improves the bottom line. The crux of the argument in favour of ERP approach lies in eliminating the need for multiple systems, reducing the high people and complexity cost of using a myriad of applications and having a single data set.

TCO of technology

Typically, depending on size, law firms deploy a traditional practice management system, in addition to anywhere between eight to 20 key business applications such as bank management, billing review, credit control, expense management, time recording, e-billing, and HR system (as examples) to run their operation. In addition to purchase costs, to run these applications, infrastructure expenses are substantial including data centres, hardware, storage, and server and user licences.

Firms also incur a substantial expense to keep these applications in step with each other. Frequently, firms use respective third parties to help them upgrade the applications, which constitutes a direct cost; but the indirect cost of ensuring that the upgraded application does not conflict or break other integrations in the broader IT environment is sizeable. Also, with multiple applications in concurrent use, this cycle of upgrading software is incessant. ERP systems eliminate the need for so many third party 'bolt on' applications. In July 2017, Fieldfisher replaced multiple legacy systems including finance, business intelligence and HR, with a single ERP solution. Cost savings from using the ERP solution in place of these systems is estimated to be £1.76 million over five years.

Furthermore, multiple systems then necessitate and lead to the cost of keeping the various data sets aligned as the records from the various applications have often to be replicated or warehoused to ensure access to them by the other complimentary business systems in the organisation. This poses numerous business challenges too, in turn impacting the efficiency and productivity of firms, both of which are important elements of TCO calculation of technology.

Read more of Janet Day's article in the InterContinental Finance & Law magazine.

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