While the cost to deliver a unit of computing resource continues to fall, there is a “traitor” to the cause of lower costs – Software. Software, eight years ago, was typically in the 40% range of the total cost to deliver a MIPS. Now, we see software taking over more than half the spend in mainframe computing; in many cases greater than 60% of the spend. While other major cost drivers have fallen through the years, software costs as a percent of the total spend continue to rise. Why? The other two largest cost drivers – labor and hardware – have continued to fall year over year:

• Labor – As support for systems has moved offshore to a more economical labor force, labor costs have fallen through the years. Increased productivity from more effective tools and established standard support processes have also increased the efficiency of the support organization.
• Hardware – Faster and cheaper has been the path for hardware; this is expected to continue as the mainframe becomes a worthy competitor to midrange servers as the platform for hosting Linux applications.

In the meantime, software costs are rising. How did software become such a large expense? Here are some things to consider as you begin optimizing your software expense.

• Shiny Object Syndrome – It’s in all of us. We like the latest, fastest, neatest tool on the market today. However, over time the functionality of tools begin to overlap and you end up with multiple applications providing similar functionality. Rationalize applications to those that provide greatest functionality and look to eliminate redundant applications.
• Value Meal – It was free and probably more than you should eat. Upon implementing new systems, software publishers will offer other, complimentary products. The hope is that the customer will begin utilizing and paying for them after some promotional period. After the promotional period of time has passed, the software is charged to the customer whether it is used or not. It’s worth the effort to take a look to make sure that every module and package being paid for is actually being utilized.
• Enterprise License – Software publishers make entering into an “enterprise-wide” agreement very attractive from a unit cost perspective. However, while unit costs are low, if a volume of license far exceeds an organization’s needs, the organization can be over spending for software.

Outsourced? Consider engaging in a dialog with your Service Provider to discuss the software expenses for your systems. Facilitate a discussion that seeks to understand how software is managed, who is looking after the spend, and rationalizing its expense. If software costs are embedded in resource unit rates, consider having your Service Provider separate them so that greater visibility into software costs is provided. Set these cost up with a mechanism that - to the extent you are able to lower costs - allows you to lower these costs dollar for dollar.

David Tienstra, Partner, TPI
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