TOTAL COST OF OWNERSHIP MIS-Fall 2009 Compiled By Amina Tariq

What is TCO? Total Cost of Ownership (TCO) is defined as all of the possible costs incurred in the life cycle of a workstation, from acquisition to disposal. Statistics puts the Total Cost of Ownership in business computing in a range between $7k-$13k per computer per year. MIS-Fall 2009

TCO – Total Cost of Ownership Relationship ROI/TCO Cost Categories Design & Development Costs Application Architecture Applciation Data Model Application Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time = TCO MIS-Fall 2009

TCO and its seven factors Hardware Acquisition 17% Software Acquisition 7% Installation 4% Training 7% Support 21% Maintenance 7% Infrastructure 36% MIS-Fall 2009

What is TCO, continued During the computer’s lifecycle, the cost of managing and supporting a computer and its users is far greater than the cost of the computer itself. Due to the difficulty in measuring the TCO it is often neglected in purchasing decisions. MIS-Fall 2009

Key factors in reducing TCO Standardization Centralization Automation MIS-Fall 2009

Average Company’s IT Portfolio Profile

Alchemy Software Development Relationship TCO & ROI Relationship ROI/TCO As the TCO of a project increases, the ROI decreases. There is an inverse relationship between TCO and ROI. TCO analysis enables organizations to identify, project, measure, and track direct and indirect costs of an IT project. A critical issue that organizations must understand, however, is that a localization application with a high TCO is not merely a budgeting problem. A low TCO not only reduces an organizations operational costs, but also effects the financial success of a localization technology initiative as measured by ROI. MIS-Fall 2009 Confidential Material. Not to be re-distributed without permission.

Alchemy Software Development Relationship TCO & ROI Relationship ROI/TCO TCO analysis enables organizations to identify, project, measure, and track direct and indirect costs of an IT project. A critical issue that organizations must understand, however, is that a localization application with a high TCO is not merely a budgeting problem. A low TCO not only reduces an organizations operational costs, but also effects the financial success of a localization technology initiative as measured by ROI. A low TCO not only reduces an organizations operational costs, but also effects the financial success of a localization technology initiative as measured by ROI. MIS-Fall 2009 Confidential Material. Not to be re-distributed without permission.

TCO – Total Cost of Ownership Alchemy Software Development TCO – Total Cost of Ownership Design & Development Costs Cost Categories Design & Development Costs Application Architecture Applciation Data Model Application Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time Pay Now or Pay (much more) Later ! Some organizations believe that they can internally develop localization applications at a fraction of the price of packaged solutions. Strictly speaking, they may be correct. In most cases, however, the development costs saved are merely deferred and incurred at even higher levels during the maintenance phase. It is a classic “pay now or pay (much more) later” situation. MIS-Fall 2009 Confidential Material. Not to be re-distributed without permission.

TCO – Total Cost of Ownership Alchemy Software Development TCO – Total Cost of Ownership Application Architecture Cost Categories Design & Development Costs Application Architecture Applciation Data Model Application Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time Single most important factor An optimal architecture is Flexible, Multi-tiered Scalable, Object-Oriented Developing this is Challenging Time-consuming Costly Not developing this is even greater Higher maintenance costs Poor performance, Scalability, flexibility Among the most important benefits that packaged applications offer is a scalable, tested architecture that meets market needs. Application vendors must offer flexible and scalable architectures to evolve their products over time with confidence that new types of functionality and deployments can be supported cost-effectively. Packaged applications therefore enable organizations to compete effectively in the marketplace even though they may lack sufficient time or internal technical expertise to develop an optimal architecture.   The Alchemy CATALYST architecture provides a highly interactive interface combining a distributed workflow model that spans the entire globalization team. Organizations achieve considerable cost savings by deploying Alchemy CATALYST, and they also enjoy a rich, interactive, productive experience not previously available from any localization technology vendor. Unlike classic Translation Memory technologies, Alchemy CATALYST provides tools that localization engineers, project managers, quality assurance engineers and translators will use in their daily work schedules. These individuals all work in the same highly visual and interactive environment reducing the complexity of the localization workflow, avoiding multiple file conversions and re-conversions and share common terminology and translation memory databases throughout their corporate enterprises. In addition, Alchemy’s Component Library Technology (CLM) allows highly customized solutions to be developed meeting specific customer localization requirements. Using the CLM framework, enterprises can leverage the core functionality and behavior from the Alchemy CATALYST architecture while using their own highly customizable translation, engineering and testing components. The most recent example of these CML technology components is the plug-in component for Microsoft .NET applications. MIS-Fall 2009 Confidential Material. Not to be re-distributed without permission.

TCO – Total Cost of Ownership Alchemy Software Development TCO – Total Cost of Ownership Application Data Model Cost Categories Design & Development Costs Application Architecture Applciation Data Model Application Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time The Application DNA Application Data Model impacts Performance Scalability Many organization lack Domain expertise Sufficient Time (aggressive schedules) Organizations that develop data models under aggressive project schedules and/or without adequate domain expertise may successfully reduce initial design and development costs, but they often compromise application performance and increase future maintenance costs in the process. Consequently, the costs of hastily performed data modeling are ultimately borne by end users as well as their colleagues in the localization technology department. Packaged applications, by contrast, typically offer comprehensive, flexible data models designed for optimal scalability and performance. Application vendors dedicate significant time and resources to formalized data modeling because their data models must support the growth of functionality and data storage requirements over the long term.   The Alchemy CATALYST data model is central to the extensibility of its multi-layered architecture and manifests itself physically as a robust and extensible object data-store. Referred to as a Translator ToolKit (TTK) the object-store allows for the storage, update and retrieval of any arbitrary object with built in-support for version control, status assignment and interrogation with automatic coupling to the Alchemy Expert technologies that help automate many of the tedious and manual steps frequently introduced in the Localization workflow. In addition to this, the ability to create and extend existing object stores with replacement editors or CLM components reduces the time and complexity of extending the Alchemy CATALYST environment to support customer specific data formats. MIS-Fall 2009 Confidential Material. Not to be re-distributed without permission.

TCO – Total Cost of Ownership Alchemy Software Development TCO – Total Cost of Ownership Application Functionality Cost Categories Design & Development Costs Application Architecture Applciation Data Model Application Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time Incremental Application features and functionality increase development costs since they add complexity Source : COCOMO II Organizations realise too late that the functionality they can afford to build themselves fails to support business needs and the functionality available in packaged technologies COCOMO II, application complexity is a primary driver of software development costs. Organizations must therefore budget and spend significant funds on application development if they want to develop functionality rivaling that of packaged applications, particularly Alchemy CATALYST. Many organizations realize too late that the functionality they can afford to build themselves both fails to adequately support business requirements and suffers from poor user adoption. MIS-Fall 2009 Confidential Material. Not to be re-distributed without permission.

TCO – Total Cost of Ownership Alchemy Software Development TCO – Total Cost of Ownership Integration Costs Cost Categories Design & Development Costs Application Architecture Applciation Data Model Application Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time Internal solutions offer Poor Integration Poor Interoperability Opportunities to reduce Are limited Single instance No ability to spread cost Poor integration capabilities will increase TCO Effective and efficient integration capabilities are critical for both internally developed and packaged localization applications, which, by necessity, must be interoperable with numerous other industry applications, encompassing support for 3rd Party data interchange formats and terminology dictionaries. While organizations cannot avoid integration costs, they should carefully monitor and minimize them as much as possible.   Companies that internally develop localization applications often find that integration costs are difficult to reduce because there are few, if any, methods of reducing the required time, training, and resources. The system under development must integrate with other systems, each of which requires specialized coding. Developers must be knowledgeable about each application being integrated and trained on the various interoperability tools that are required to complete the integration. In contrast, packaged applications often enable organizations to reduce integration costs through prebuilt adapters, connectors, and integration tools. These tools are often complemented by alliances between application vendors and systems integration firms, which develop and offer validated integration solutions for the most common systems. These turnkey solutions permit rapid, low-risk integrations by experienced professionals. Alchemy Software Development understands that to achieve real-time visibility into localization processes, today’s enterprises require a solution to the challenge of cross-application integration—one that avoids the costs and complexities associated with point-to-point, proprietary, and custom solutions. In approaching this challenge, Alchemy Software Development looked at it through the eyes of its customers. It became clear that organizations want an integration solution that is both flexible and low cost, and they want to be able to leverage best-in-class applications, integration server technology, and business process model expertise. As a result of taking this customer-focused perspective, Alchemy Software Development is collaborating with the leading systems integrators and integration server vendors, leveraging their expertise and Alchemy’ industry and localization domain expertise to deliver XLIFF (XML Localization Industry File Forman)—the industry’s first and only standards-based, vendor-independent solution to multi-platform and multi-application localization . In addition, prebuilt Alchemy adapters to leading localization workflow servers are available, further reducing the cost of integration. These connectors are built upon infrastructure included in the Alchemy CATALTST:Server Edition product and can be used by organizations to expand or extend the Alchemy CATALYST out-of-the-box localization solution. XLIFF is a natural evolution of Alchemy’s integration solutions, and extends the company’s leadership to multi-application integration. MIS-Fall 2009 Confidential Material. Not to be re-distributed without permission.

TCO – Total Cost of Ownership Alchemy Software Development TCO – Total Cost of Ownership Training Costs Cost Categories Design & Development Costs Application Architecture Applciation Data Model Application Functionality Integration Costs Training Costs Maintnenance Costs Opportunity Costs Development Time Commonly overlook Always under-estimated Misconception Small number of uers = Low Training Costs Focus on functionality rather than usability Limited scope for cost reduction Many training costs are fixed Training Manual(s) Trainers trained Among the most commonly overlooked and underestimated application costs are those for end user training. A common misperception is that a small number of users implies a low training cost, but many organizations fail to realize that certain training setup costs are relatively fixed regardless of the number of users to be trained; materials must be developed, and trainers must be trained before users can attend scheduled training sessions. Internally developed localization applications tend to have higher training costs than packaged applications partly because they are often designed with a greater focus on functionality than usability. Developers are typically charged with developing a system that includes certain required functionality by an agreed-upon deadline; usability requirements and testing are often regarded as issues of secondary importance. As a result, internally developed applications often suffer from complicated views, poor navigation, and other impairments to application usability, which translate into longer training times, higher training costs, and lower user acceptance. Packaged applications provide two benefits not offered by internally developed localization applications that help lower training costs. (1) Packaged applications are designed to maximize usability because they must have appeal and acceptance in the marketplace at large and across a broad variety of industries. (2) The second benefit associated with packaged solutions is the availability of third-party training resources. Package applications that enjoy even moderate market success provide consulting firms, systems integrators, training firms, and application vendors themselves with a financial incentive to develop standardized training programs. MIS-Fall 2009 Confidential Material. Not to be re-distributed without permission.

TCO – Total Cost of Ownership Alchemy Software Development TCO – Total Cost of Ownership Cost Categories Design & Development Costs Application Architecture Applciation Data Model Application Functionality Integration Costs Maintnenance Costs Training Costs Opportunity Costs Development Time Maintenance Costs Majority of costs incurred not during development but during Operating Maintenance Upgrade 70-90% of annual budget 10% new feature(s) Maintenance increases with Bad Architecture In-adequate data model(s) the majority of ownership costs are incurred not during development, but in operating, maintaining, and upgrading a system over a period of time. Organizations commonly spend between 70 and 90 percent of the funds budgeted annually to internally developed localization applications on maintenance (for example, application and database administration, software patches, and upgrades) and the balance on the development of new functionality. Maintenance costs for internally developed solutions are higher when organizations fail to invest adequate time and resources in the architecture and/or data model during a system’s design and development stage. Many packaged localization applications enable organizations to dramatically reduce maintenance costs. Unlike companies that internally develop a solution, application vendors are able to allocate the significant maintenance costs that they incur over their entire installed user bases; any one customer pays only a fraction of the total cost it would incur if it were to maintain an internally developed solution with comparable features and functionality.   In addition, application vendors typically offer well-tested, scalable architectures; optimized data models; upgrade tools; and toolkits that obviate or reduce the need for maintenance coding. In the aggregate, these offerings typically enable packaged localization applications to enjoy significant cost advantages over their internally developed counterparts. MIS-Fall 2009 Confidential Material. Not to be re-distributed without permission.

TCO – Total Cost of Ownership Alchemy Software Development TCO – Total Cost of Ownership Opportunity Costs Cost Categories Design & Development Costs Application Architecture Applciation Data Model Application Functionality Integration Costs Maintnenance Costs Training Costs Opportunity Costs Development Time Definition : When resources are limited, the decision to pursue one opportunity over another requires a company to incur one or more opportunity costs Hard to quantity and qualify Companies that do consider it Generally agree that re-inventing the wheel is prohibitively expensive from an opportunity cost perspective Companies maximize shareholder value when they accelerate their Time to market Allocation of resources to best usage When resources are limited, the decision to pursue one opportunity over another requires a company to incur one or more opportunity costs. Opportunity costs comprise the value forgone by a decision to develop, rather than buy, a localization technology application. Opportunity costs have strategic as well as financial implications and are perhaps the most compelling of costs favoring packaged applications. The cost advantages of packaged applications, however, are often dramatically greater when opportunity costs are properly identified, quantified, and included in ROI and TCO analyses. Companies that consider opportunity costs while making the build vs. buy decision may very well conclude that reinventing the wheel can become prohibitively expensive from an opportunity cost perspective. Time-to-market : While they vary in their functionality and effectiveness, most internally developed and packaged localization applications deliver significant financial benefits in terms of revenue enhancements and cost savings once they are operational. It follows, however, that each day spent designing, developing, and implementing a localization application beyond the optimal implementation period represents an opportunity cost in terms of lost financial benefits. Development time therefore becomes a critical issue in the build vs. buy decision, particularly when the localization technology solution has been deemed mission-critical to a broader corporate strategy of accelerating revenue growth opportunities by expanding into international markets. Internally developed localization technologies often require longer times to develop than packaged solutions because they must be designed, developed, and implemented from scratch Given that five full-time developers might take a year to develop an XML visual localization solution that offers functionality rivaling that of a packaged application, it would likely take considerably longer to design, build and deploy. Packaged localization technologies, in contrast, generally reduce development time because they enable companies to skip the design and development phases and immediately begin implementation, which can often be achieved in a matter of weeks. Any improvement in reducing the implementation time will have a corresponding impact on time-to-market for their localized products. MIS-Fall 2009 Confidential Material. Not to be re-distributed without permission.

TCO – Total Cost of Ownership Alchemy Software Development TCO – Total Cost of Ownership Development Time Cost Categories Design & Development Costs Application Architecture Applciation Data Model Application Functionality Integration Costs Maintnenance Costs Training Costs Opportunity Costs Development Time Assumption : Once operational, applications deliver significant financial benefits (Revenue, cost savings) => Lost Opportunity Cost Days to design, develop, implement and deploy * Daily Benefits of Operational System To minimize opportunity costs Reduce development time Aggressive schedules Reduced functionality Reduced ROI Leads to bad deployments and user acceptance While they vary in their functionality and effectiveness, most internally developed and packaged localization applications deliver significant financial benefits in terms of revenue enhancements and cost savings once they are operational. It follows, however, that each day spent designing, developing, and implementing a localization application beyond the optimal implementation period represents an opportunity cost in terms of lost financial benefits. Internally developed localization technologies often require longer times to develop than packaged solutions because they must be designed, developed, and implemented from scratch. Packaged localization technologies, in contrast, generally reduce development time because they enable companies to skip the design and development phases and immediately begin implementation, which can often be achieved in a matter of weeks. Any improvement in reducing the implementation time will have a corresponding impact on time-to-market for their localized products.   Among opportunity costs, the time to market opportunity cost is perhaps the easiest to quantify. The expected daily financial benefits from the operational localization technology should be multiplied by the difference between the number of days for an internally developed solution to become operational and the number of days for a packaged solution to become operational. Furthermore, companies that internally develop a localization technology solution sometimes attempt to reduce the development time by reducing the functionality offered. This approach leads to an opportunity cost of a different nature, however, because the system-generated revenue enhancements and cost reductions typically decrease as functionality decreases. These foregone financial benefits must be considered against any benefits achieved by reducing the development time. MIS-Fall 2009 Confidential Material. Not to be re-distributed without permission.

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