Friday 16 September 2016

Is it worth considering SaaS for Capacity Management? (1 of 3)

SaaS and software purchase

Many people seem to be talking about Software as a Service (SaaS) for many things.  Within my own business we use it for a variety of functions: email, CRM, Help Desk, application lifecycle management – to name just a few.  We like the model and have bought into it where we feel it is the best approach.  Small businesses like ours take pride in our flexibility.  SaaS fits in with this ethos.  Money is always important to a small business.  To have moved so much functionality into Cloud based services, we must feel the cost is good.

As a Capacity Management software and services vendor, we now regularly get asked if we will provide our athene® software in SaaS mode.  Many more people have asked, than have gone forward to implementation.  This got me wondering if and why SaaS is the right delivery mechanism for Capacity Management. 
The comparison I am making is with ownership and running software, third party or developed in-house, on premise.  There is a halfway house, managed services, where the software is installed and run at your premises, but managed by a third party.  I’ll leave the managed services comparison out of things for now, as that is by far the least requested and least implemented model in my experience.

Clearly the most common model for running a capacity management function in the past has been on premise software, either developed in-house or purchased from a third party.  The relevant merits and benefits of those two approaches can be considered another time.  For now, I’ll compare having Capacity Management run as SaaS with both.  SaaS is the new kid on the block, and presumably needs to offer something distinctly better than on premise software if it is to tempt people out of their organization and into the Cloud.

Finance

The main driver for many decisions is cost, and SaaS offers a very different cost model compared to owning software.  It often boils down to a difference between ‘capex’ and ‘opex’, capital expenses and operating expenses.  Is there a cost saving for one compared to the other, or are they just different ways of accounting for money?  Although this can vary by country, the main financial difference between the two can be how they are treated from a tax perspective.  For SaaS, in many tax regimes, 100% of the software charge is tax allowable each year, against a much smaller proportion for purchased software.  For this reason alone, your CFO might prefer SaaS.

There are other related cash benefits.  From a CFO’s perspective, predictable but flexible cash flow is preferred. SaaS offers these things.  Costs are typically flat over whatever period you pay.  After some initial set up charges, payments are often made for shorter periods than software purchase, for example monthly or quarterly.  This contrasts with software purchase, typified by a high initial one time cost and an annual maintenance payment.  Unless a payment schedule is agreed with your supplier, this means a higher upfront cash outlay than for SaaS, irrespective of how the business internally accounts for that expenditure.  Being tied in to annual maintenance paid in advance can mean a business feels there is no flexibility with software ownership.  Once the payment is made, getting any cash back is unlikely.
SaaS offers the promise of being able to flex resources, and therefore expenditure, on much smaller time scales, e.g. monthly, in response to demand.
A final area where SaaS might appeal to your CFO is the speed of the return on investment compared to traditional software ownership.  That big upfront payment for software means you have to use it for some time before the benefits you receive from using it outweigh the money spent.  If you have less money spent upfront and a small monthly payment with SaaS, you cross that line much quicker.  SaaS also offers the promise of being able to downscale your Capacity Management to fit budgets and ensure it provides return on the money spent.  Software purchase means that once the money is spent, it is spent.  If the return on investment isn’t as much as expected, the expenditure side of the equation cannot be adjusted.

It’s not always about the cash…

Running software in-house means more than just buying a product, then sitting back and watching it do your Capacity Management on its own.  If only the world were that simple!  Other factors are needed in place and working well to make Capacity Management successful. I'll deal with this on Monday.
In the meantime take a look at athene®SaaS  http://www.metron-athene.com/products/athene-capacity-management-software-as-a-service/index.html

Andrew Smith
Chief Executive Officer



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