The Cost of Custom Interfaces

The Cost of Custom Interfaces

CFO/CIO alert!

Have you reviewed the cost of your custom interfaces lately, particularly those associated with your “third party” software systems? Best-of-breed app systems have been on the decline for years, as clients realize enormous savings in Total Cost of Ownership (TCO) by going to mature, integrated ERP software add-on modules, by such providers as Oracle, PeopleSoft, JD Edwards, and SAP. Many of the best-of-breed solution’s days in the sun are coming to an end, as modern ERP provides more recent product suite options – especially as their clients sunset their old best-of-breed systems.

Why is that? In a nutshell: seamless integration offering significant cost reduction in custom development and support, simplified data management, and enhanced performance, along with a broad range of delivered functionality.

So what is the real TCO of your third-party system maxtrix versus using integrated systems from your ERP provider?  Have you run the numbers?  The two primary considerations are:

  1. One technology support group, versus two. Consider training, space, and all associated costs, as well as 2X the staff costs.
  2. The additional costs to develop, maintain, and support interfaces though upgrades.

Many technologists consider the cost to develop a custom interface to be somewhere around $50,000 each, depending on complexity. In addition, the expected costs of annual support and maintenance over a 5+ year life cycle is likely between $15,000 and $30,000 per year, per interface, or a total of $125,000 to $200,000 each, again over a 5 year life cycle.

And that may be low.

A recent article in CIO magazine noted that “By adopting a service oriented architecture, Marriott lowered the cost of adding an interface from about $400,000 to $50,000.

Interfaces cost a lot of money, a good deal of which is apparent on the backside analysis.  Up front, it might not look so bad.  Five years down the road, and things look markedly uglier, especially if your interfaces have sprawled wider than you originally thought they would.

Whether your cost is $125,000 or $400,000 per interface or somewhere in between, zero is a lot better. Third-party systems may require between 10 and 60 custom interfaces to integrate back to an organization’s ERP system. It’s not hard to see we are talking real money if this is the true lay of the land. (Side note: Without full-on integrations, you also are not realizing the potential benefit across the enterprise.)

So, again, what are the real costs of your third-party interfaces?  The numbers may surprise you, and the gods live in the details.

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