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The license fee for software may be much less than labor and implementation costs

The blog of Lecorpio has post on Jan. 1, 2011 that talks about the hidden costs of software, those costs a law department incurs over and above the license fee. As backup they refer to but do not cite to a government study. “The U.S. Department of Commerce study shows that software purchase expenditures account for only approximately 30 percent of the total. The biggest hidden cost is represented by labor expenditures ranging from 37 percent for support and 33 percent related to software getting the software up and running. The numbers translate to a ratio of 1:2, software license to management/labor costs; and 1:1 license fee to implementation.”

The original text comes from a 2003 paper by Tim Chou. On page 2 Chou writes “In addressing total software related spending, JP Morgan Chase technology analyst Chuck Phillips cites a recent U.S. Department of Commerce study” and the exact quote of Lecorpio follows.

I don’t doubt that the total cost of software for a law department goes far beyond the initial license fee. Still, to cite a study done at least eight years before, years during which the bee hive of software has been buzzing furiously, leaves me wondering about the old research’s current accuracy.

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One response to “The license fee for software may be much less than labor and implementation costs”

  1. It’s just one data point, but my experience in Microsoft’s legal department suggests that the 30% number is high. If you look at true costs all up, including all labor (legal department too) involved in making a new software system happen, the money you pay the vendor might be more like 25% of the total on any complex system.
    It’s both an accounting and a perception problem. The software licensing costs are isolated and jump out at you. People costs often have to be aggregated, guessed, blended rates taken into account, and so on… and then you have to figure out all the hours and people truly involved. How much time did IT leaders spend supervising? How much time did folks in Legal spend giving requirements and observing and testing?