By Saravanakumar P Software Modernization has become an inescapable component of the smart digital transformation that is underway in all enterprises across the world. Businesses must modernize their legacy programs as they grow increasingly vulnerable to the harmful consequences of obsolete software.
Given the aforementioned circumstances, it is critical for all businesses to address the legacy modernization phase, which presents clear obstacles such as evaluating the cost of inaction and risk reduction. In this post, we will explain how to decrease expenses and assessing the cost of inaction in software modernization.
Why Organizations Stay With Old Software Systems for Longer than they Should.
There are various reasons why organizations continue to pay high maintenance expenses for older software. Executives at an older, lucrative software firm may be pleased to maintain the clients and products they have instead of pursuing new chances. Executives at a big corporation or government institution may have initiated a legacy system update, only for it to fail or create more interruptions. In another example, management may be paying extravagant sums to maintain a legacy system without fully understanding how much it is costing the firm.
In any case, it’s prudent to take a step back and evaluate your personal expenses. Knowing how much your legacy program truly costs might help you put the expense of a software modernization project into perspective.
The Three Ways to Modernize Software and Applications
Before we discuss the costs of modernization, we’d want to explain mastering software modernization and how it’s done. Once you’ve decided to update your legacy application, you must choose one of the approaches outlined below.
Rewrite.
First, you can rebuild the application’s code using a contemporary and dependable programming language. This strategy frequently results in overestimated costs and time periods, so thoroughly review your project before deciding to change the code.
Replace.
This solution requires you to replace the entire system with a newly developed application. However, key components and functionalities from the previous program will be needed in a different form for the new application to function properly. When replacing an app, the amount of complexity might increase until you reach a final version.
Reuse.
The third option is to reuse the old legacy program while updating it for improved functionality. This strategy will comprise a step-by-step process, with testing conducted after each phase.
The Biggest Costs of Maintaining Legacy Systems
There are seven major types of expenditures for sustaining legacy applications:
- Maintenance
- Security
- New development.
- Downtime
- Customer Support
- Lost Revenue
- Opportunity
Maintenance Charges
Simply sustaining a custom software development and its present feature set might be costly.
What goes into this cost?
This category includes what you spend on infrastructure, such as your cloud provider and DevOps platform, as well as what you spend on development to maintain and test the present set of features. This includes how much you spend on software product development personnel, agencies, and freelancers.
Security Expenses
While security is connected to maintenance, it might incur its own expenses.
What goes into this cost?
This category includes everything you spend on security, both proactively (for cybersecurity personnel and services) and retrospectively (for data recovery). The more people you have, the more you are going to spend on security.
New Development Costs
Legacy applications are often far more expensive to update than new applications. Longer development times incur more worker and contractor hours. Because your system is so tough to upgrade, you may be spending two to five times more for new development.
What goes into this cost?
This cost is often expressed in terms of the hourly or monthly rates you pay employees or contractors to create new features. However, there may be certain fixed expenses involved with incorporating new features into a legacy system, such as excessively expensive cloud fees owing to long code.
Downtime Expenses
Legacy programs have more frequent outages due to antiquated technology. You may also see more outages because your development team lacks the requisite expertise to effectively maintain the system owing to its outdated architecture or programming language.
What goes into this cost?
This category includes the cost of uptime monitoring, downtime warnings, and staff or contractor hours spent restoring the system to operational status. However, downtime raises additional expenses on this list, such as missed opportunities with new customers, greater churn, and more customer support inquiries.
Customer Support Charges
If your development team is having trouble maintaining and updating a legacy system, there’s a strong probability it’s also a catastrophe for your users.
What goes into this cost?
If you have a negative experience, you will wind up paying more for customer assistance. If there are frequent problems and the UX is so complicated that users are unable to figure things out on their own, you will receive more customer support tickets. You’ll also have to compensate your development staff to patch any issues that users find.
Lost Revenue Costs
We’ll look at the new potential expenses in the following category, but this one is all about the existing business you’re losing due to your outdated system.
What goes into this cost?
Calculate your software company’s churn rate, average lifetime value, and average length of customer relationships when customers leave. For internal-use systems, determine how many staff hours are wasted due to time spent in an inefficient application.
Opportunity Costs
Finally, the most difficult category to assess is lost opportunity costs.
What goes into this cost?
For software firms, you should investigate your entire addressable market and the share your company may potentially obtain if not for your antiquated technology and bad user experience. For internal-use systems, your lost opportunity costs are determined by what your development team might be doing instead of maintaining this application.
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Two Business Concepts to Describe the Cost of Maintaining Legacy Software Modernization
To better comprehend the cost of maintaining outdated systems rather than investing in application modernization, we advocate applying the Value Chain and Order-to-Cash principles.
The Value Chain Concept
The value chain is a framework that assists firms in describing a whole cycle of business operations that add value to their products or services, from obtaining ingredients to delivering the finished product to the market. The primary and secondary activities are included in the value chain. Its purpose is to provide the most value at the lowest feasible cost in order to gain a competitive edge.
Modernizing a program may enhance functionality, usability, and performance, resulting in better client satisfaction and revenue. The advantages of a modernized application include faster response times, improved user interfaces, and more functionality, all of which contribute to a better customer experience. Furthermore, application modernization may improve operational efficiency by automating manual procedures, optimizing workflows, and minimizing mistakes, which leads to higher productivity and cost savings.
When calculating the cost of sustaining legacy applications, consider the value chain’s direct and indirect reliance on old software. Because various dependencies may have an influence on legacy systems, evaluating the costs and income for each process activity can aid in identifying the value chain’s important components. By evaluating them based on their greatest cost and income and comparing them to older software, you may acquire useful insights into the most successful application modernization strategy.
The Order-to-Cash Concept
The Order to Cash (O2C) process is a collection of business actions that begins with receiving a customer’s order and ends with receiving payment and concluding the transaction. The process can be tailored to the specific company model, such as Subscription-to-Cash, Quote-to-Cash, or other variations.
Software modernization may significantly improve the O2C process by simplifying and automating its many steps, resulting in higher productivity and satisfaction for both staff and consumers. Automating the tracking and management of inventory levels, shipping, and delivery improves the order fulfillment process, whilst using electronic invoicing and payment systems simplifies the invoicing process and lowers mistakes. Furthermore, automating the payment processing step improves the payment collection and reconciliation procedure.
Regarding the expense of maintaining legacy software systems. O2C-like procedures are often a funnel with many phases that filter out a section of clients based on conversion rate. Legacy software can have an influence on conversion rates, both directly and indirectly. By identifying the most substantial drop-off, particularly when compared to industry standards and market characteristics, and tying it to old software, you may receive insight into where modernization efforts should be focused.
Conclusion
Maintaining outdated technology costs your company money and yields no benefits. At first glance, it could seem more cost-effective to maintain pricey old platforms. When weighing the costs of upgrading vs doing nothing. But considering both explicit and hidden costs, together with describing the cost of maintaining outdated tech systems through the use of Value Chain and Order-to-Cash ideas. Will make it evident that modernization is imperative.
VelanApps can assist you in implementing the most effective software modernization strategy. While delivering the greatest value in the shortest amount of time to market. If you’re searching for a dependable partner with years of experience. Speak with us about your company’s requirements.