Value for money
Money is the cost we have to pay for what we want, and the perceived value is the total benefit of that purchase. Continuing the discussion from (The Cost of Features: What do we expect from an accounting solution? Part 1, last week) we have defined the features we seek. We know what features we desire in the preferred product and why. What remains, is to determine the cost to be incurred to benefit from the required features.
Software Pricing Models
In order to avoid the proverbial comparison of apples and oranges, it is important to understand how software vendors bill for their products. Pricing should not be confused with licensing, which is not under discussion here. Named User pricing requires each user to be clearly identified on the system and is typically billed for separately. Concurrent User pricing is generic and aimed at higher volume. Billing is most often annual, or monthly. The risk of annual billing is that half way through a given year, we may discover the product no longer suits our needs. This type of mechanism is often used to lock-in users. Monthly billing may be more flexible, but does not necessarily cover partial payment nor notice periods. The most suitable approach is often a Total Cost of Ownership (TCO) as an annual financial estimate intended determine the direct and indirect costs of a product or system. TCO aggregates all associated costs to arrive at a value which can be used in the evaluation. This should include the actual cost of the product under consideration as well as other closely related costs, such as data migration, data backup, after sales support, training etc.
A simple cost-to-benefit mind map is employed. At the bottom we see a spectrum ranging from few desired features on the left, to almost all desired features on the right. On the left, we see low cost at the bottom and high cost at the top. The first division is into cost categories, according to the horizontal Affordability Line. Items above the line are beyond our budget. The Feature Line runs top to bottom, with items to the left in the insufficient features category. The mind map is divided into four quarters. Top right offers many features, but at high cost, and bottom left offers less features, but at affordable cost. We may describe the bottom right corner as the sweet spot: everything we want at very low cost. The opposite is true for the top left corner, with few features available at high cost, where we proverbially burn money. In a world of limited resources, and in the light of South Africa’s shrinking economy, it is safe to assume money to burn is not an option.
For the purposes of this discussion we may assume that the products selected based on their various features make these products attractive to us, as customers.
The mind map reveals a common hazard in the bottom left corner, where highly unsuitable products are available at low cost. This fuels the fallacy that by saving money, a suitable solution may be obtained. By using fundamentally inadequate products, we do not only exacerbate the inherit risk, we also expose the data to expensive rework and duplication from one system to another. Only inherently suitable products should be considered for deployment.
In a perfect world one could anticipate costs which increase along a straight line as more features become available. But that is only in a perfect world and from the perspective of the buyer. In the real world, software vendors design and implement solutions based on the needs of an ideal customer. It should come as no surprise that the needs of real law firms are very far removed from perceived ideals. The result is that offerings in the market may or may not meet our needs to lesser or greater degree, with an attached price tag. If we were to pay only for the required features, we could perhaps achieve a perfect-fit at rock bottom price. But reality is seldom that accommodating. The result is that a product which may appear near perfect for one client, is ultimately unsuitable for another.
It is important at this point to note that although all law firms are subject to the same regulatory environment, the day to day operations vary greatly between individual practices. A solo criminal law practice has substantially different operational requirements from a multi-partner commercial / litigation practice. Make sure the specified requirements fit your needs.
Based on the required features analysis, we know how well each specific product fits our unique needs. Each of the prospects under consideration is plotted on the mind map in order to provide a visual presentation of cost-to-benefit ratio, where the benefit is the value to be derived from selected features. High and low cost is relative and the perceived cost may be influenced by the perception of a perfect-fit. It is highly recommended to have a clear understanding of budget constraints at this time.
Prospects are positioned on the mind map by aligning the perceived suitability (number of desired features) along the feature line on the horizontal axis. Prospects with more desired features align further to the right. Likewise, cost is plotted along the vertical axis, with more expensive products above the affordability line. It serves repetition that suitability is subjective and specific to each law firm. To simply state that Product A is the best for all firms is not only problematic, but overly simplistic. Similarly, a product may be very affordable for one firm, and overly expensive for another.
The colored dots on the mind map provide easy visual access to many typed pages of information. Regardless of the size of the team making the final decision, it is much easier to point to a spot on the mind map than to refer to pages of a presentation.
Based on the mind map presented, we may determine that the pink dot in the top right corner meets our needs best, but at prohibitive cost. The yellow dot presents very few desired features and at a cost that makes it prohibitive. The blue dot approaches our needs best at a very favorable cost to benefit position. The purple dot offers sufficient features to meet our needs, at a very affordable cost. It does not have all the features we require, but the cost is low enough to justify the purchase of other solutions.
Once suitable products have been identified, the next step should be to determine the cost involved with each choice, finally arriving at an acceptable cost-to-benefit ratio. Choose what you need, pay only what you can afford.
Carl Holliday is an attorney specialising in practice management and compliance.