The Hidden Costs of ITIL Service Management

As the global economy continues to challenge businesses, more and more organizations are understandably looking closely at their bottom line and searching for ways to decrease costs and increase efficiencies. Nowhere is this more important than in the front line of customer service and support.

The Customization Dilemma

While the traditional vendors continue to increase maintenance fees and provide little or no innovation, relying (almost exclusively) on consulting services to grow, LiveTime continues to invest heavily into building better and more innovative products (over 40% goes into Research and Development). If we look at the breakdown of costs with traditional vendors you can quickly see their bias towards services. These companies do not sell solutions, they sell toolkits, specifically designed for their consultants and partners to provide an everlasting stream of revenue as they customize the system to your needs. Naturally this is perfect for consulting, since every change needs to be discussed, planned and implemented. Then, at the end of the cycle (usually 18 months or more), a new version is released, at which point you have to decide if you would like to upgrade and therefore re-implement all the changes. Thus begins an endless cycle of consulting.

Naturally many organizations decide to stop after the first implementation cycle rather than continue down this path forever. However, at this point most organizations are locked-in until the product is amortized, while continuing to pay the ever increasing maintenance fees. “Businesses that have already invested in software from the companies can’t afford to rip the systems out and replace them with software from other companies”, the Wall Street Journal.

LiveTime focuses less on consulting and more on solutions. The software has been specifically designed for customization using simple toggles directly in the user interface, as well as standard HTML and CSS. LiveTime and its partners are more interested in solving your business problems. Therefore, our consulting focuses more on business process re-engineering and training, not software programming.

Pricing Models

Let’s now take a look at the pricing strategies from the larger vendors. Note that there is no way that you can actually understand all the moving parts, as they are designed to be unintelligible. This provides the vendor with many fudge factors they can fall back on during price negotiations. What you will notice is that services are only vaguely defined, so that the bottom line number looks competitive at first glance. Remember that LiveTime makes 98% of it’s revenue from software licenses, whereas the larger vendors make only 40%-60%. This is why we routinely see the larger vendors offering such huge discounts. We have seen some offer as much as 90%, which are subsequently recovered on the back end with expensive consulting contracts.

If we look at the table closely you will also notice many of the typical hidden costs. We have chosen to only document the most common ones to keep this article brief. One of the first things you will notice is the instance, or server fee associated with the install. So before you even purchase licenses you have to license the ability to run it on a machine. Often this is also associated with a CPU factor so that it scales with the number of CPU’s on the machine. Next you will notice that there are many core features that are actually additional charges, such as a CMDB and Knowledge base as well as any integration charges. This is where most of the small costs and expenses add up very quickly. What has always confounded LiveTime is how can you claim to offer a best practices solution without the core functionality, such as a knowledge base or CMDB, anyway. It’s like trying to sell a car without an engine or wheels. Very difficult to do, but clearly some people don’t notice.

Next are the key service charges, which vary widely and are often presented as single line items to be discussed later, which is where the problems will begin. Most vendors will never commit to any time limits up front as this is not in their best interest.

Finally we need to consider the other hidden costs of each system, which are not insignificant. These include a full time administrator, the number of database connections required for the number of supported users and how the upgrade policy works. Of particular note is the upgrade and support policy. Most vendors will supply all patches within a release at no charge, but provide an upgrade fee for feature releases. Even if full upgrades are provided under a contract, they are of little value, as full consulting is required to migrate the system anyway. This is in stark contrast with the LiveTime approach which simply requires a single click to migrate to a new version.

As you can see there is a myriad of costs to consider when selecting a service management product. Not all of these are obvious at first glance, but can have a huge impact on the total cost of ownership. LiveTime focuses on building the best products using the best technology available to deliver out-of-the-box ITIL Service Management. The flexibility of this approach means it can be delivered on any architecture for on premise or on-demand Software as a Service, virtual and physical hardware appliances.