Chapter 11 - IT Procurement Planning and Strategic Sourcing

11.7.2 Build vs. buy analysis

Computer systems and software seem to go out of date as soon as they hit the market. This presents agencies with the dilemma of whether it makes more sense to build a custom system or buy a packaged solution. When building or buying a new IT system, there are a number of things to consider. For a custom system design, an agency will have to deal with hard costs such as development, testing and implementation. For off-the-shelf packages, there is initial package cost, ongoing license fees, and possibly costs to customize, configure, modify, test and maintain. For application service provider, software-as-a-service or other cloud-based solutions, consider the security and data privacy requirements to determine if hosting should really be provided by the agency or VITA, or if a private cloud is required vs. a public one, and consider all associated costs for the different data hosting and data storage environments. Build vs. buy decision points are the same regardless of the procurement:

• Cost
• Time to market
• Market conditions
• Architecture
• Support costs
• Availability of skilled resources
• Strategic value

Additionally, major IT supplier consolidation has led to new pricing models and bundling options that give business owners much greater leverage. Open source software may deliver the best of both worlds, with hybrid approaches that combine purchased and custom-built components. When evaluating whether to build or buy, an agency must understand the total costs during the software life cycle, which are typically seven or eight years. Research studies show that 70% of software costs occur after implementation. A rigorous lifecycle analysis that realistically estimates ongoing maintenance by in-house developers often shows that it is cheaper to buy than create a solution. In addition, as more cost-effective, attractive market solutions become available, it may be more favorable to replace aging proprietary applications with proven commercial solutions. When conducting a build vs. buy analysis, there are some decision points which can help with the analysis:

• Decide what the system requirements will be, based on the system's ultimate use. These requirements will dictate the points to consider during the build vs. buy analysis.
• Research the types of available market products available to meet the requirements. Analyze these products' strengths and weaknesses versus the requirements and how they compare to the design and implementation of a custom-built system.
• Develop a decision analysis spreadsheet for each product rated on cost, customization, schedule, supplier support, etc.
• Evaluate intangible factors that are hard to quantify. If the system needs repair or modification, it may be easier to find developers to support generic languages such as MS Visual Basic or Oracle than specialty programming languages. It is beneficial to own the source code so developers can work on the system. With a custom system, an agency can own the code if the contract is written correctly. With a packaged system, an agency will have to pay licensing fees and may not be able to obtain access rights to key parts of the code.
• Avoid purchasing more capability than is needed. Many packaged software systems have more features than an agency may need.