An Unlikely Place to Find Cost Savings ERP Software Maintenance and Support Annual Fees: Some Finance and IT Departments Have Found Long-Term Savings by Using Third-Party Maintenance and Support Providers for Their ERP Software

By Olsaker, Eva | Government Finance Review, December 2010 | Go to article overview

An Unlikely Place to Find Cost Savings ERP Software Maintenance and Support Annual Fees: Some Finance and IT Departments Have Found Long-Term Savings by Using Third-Party Maintenance and Support Providers for Their ERP Software


Olsaker, Eva, Government Finance Review


Government executives are being asked to manage and operate their organizations under severely constrained fiscal conditions, all while improving efficiencies and performance. The average information technology (IT) organization spends 68 percent of its IT budget on maintaining the organization, systems, and equipment, according to a 2009 report. (1) Some of these costs are fixed, which limits flexibility and results in budget cuts elsewhere in the organization. However, some finance and information technology (IT) departments have found long-term savings by using third-party maintenance and support providers for their enterprise resource planning (ERP) software.

Third-party maintenance and support providers offer software maintenance and support for most ERP systems. These firms provider services such as technical telephone support, emergency after-hours support, legal and yearly tax updates, regulatory updates, system configuration, software bug fixes, and software patch updates. These are maintenance services typically provided by the ERP software vendor under the organization's paid maintenance support contract plan. In some cases, the third-party provider may also support existing customizations of the software.

WHO MIGHT BENEFIT

Software maintenance and support provides owners of software licenses with an upgrade to the next major software release, delivery of minor updates and patches, updates of regulatory information, and toll-free customer support by phone. Generally, annual maintenance and support fees range from 17 percent to 22 percent of ERP license fees, with annual increases--sometimes of 5 percent a year--tied to the inflation rate. Depending on size, budget, and number of users, government organizations often pay hundreds of thousands of dollars per year for enterprise software maintenance and support. If an organization stops paying the annual fee, it receives no software support or access to upgrades, in which case its options are to support the software itself, hire a consultant, or hire a third-party maintenance and support vendor.

A number of organizations are asking themselves if they are getting a good value for their annual support fees. While maintenance and support services and costs may be necessary, some organizations that are looking for areas of cost savings see these fees as excessive, especially if the jurisdiction is having no issues with the current version of its software, doesn't contact customer support for service, doesn't anticipate upgrading to the next major software release, and doesn't see the customer services received as worth the annual expenditure. In addition, some government organizations have found budgeting for maintenance and support frustrating. Pittsburgh (Pennsylvania) Public Schools, for example, did not find out its maintenance and support costs until after its budget was requested, and obtaining maintenance and support cost information from the vendor for budgeting purposes proved challenging.

The current economic climate has made these software support payments all the more painful for many governments. In Montgomery County, Maryland, for instance, the chief information officer no longer sees the maintenance fees paid to software vendors as reasonable, and he foresees governments using other products and service providers, and potentially taking risks they'd prefer not to take, as a result. (2)

Organizations that migrate to third-party maintenance and support providers for their enterprise software tend to have similar characteristics:

* They have no problems with the version of the software they're using

* They don't intend to upgrade their software

* The functions offered by the software meet the needs of the organization

* The organization as a whole does not see future enhancements as being necessary

* The current software is heavily customized

* The organization is not under current maintenance and support

* They are not satisfied with the customer service they receive from their software vendors

* They are often looking for cost containment opportunities because they cannot afford their current annual support costs. …

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