Total Cost of Ownership: Database Design and Development

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Table of Contents

Introduction
TOC of Database Design and Development
Long Term Implication on proceeding with the Project
Conclusion
References

Introduction

Total Cost of Ownership (TOC) of software systems, especially organizations is an issue that has raised concerns. While this activity does not earn revenue like other functions such as software development or manufacturing, the integrity, and functioning of the database are critical. This paper examines the cost factors involved in database management and analyzes two options: one where database development and maintenance could be done by hiring full-time employees or second by outsourcing or in-sourcing the work to other parties. The paper analyzes concerns such as security and data theft with problems related to both options.

TOC of Database Design and Development

According to a white paper published by MySQL (MySQL, 2006), the TOC of database design and development is made up of different cost components such as software, hardware, staffing, and training. Of these components, staffing and training costs account for 21 % and 19 % respectively while hardware and software costs are 17% and 15% respectively and the downtime and maintenance costs are 28%. These components need to be addressed while considering steps to reduce the TOC. The hardware costs are related to the current technology and affordability and this is a technical issue. Using open source applications such as Linux can reduce software costs. Optimizing the process can reduce downtime and maintenance costs. If full-time employees are used for database development and management, the cost components of staffing and training can be brought down by outsourcing or insourcing.

Long Term Implication on proceeding with the Project

Hiring Full Time Employees

While planning a project, the option of hiring full-time employees needs to be considered. Having a full-time employee means having a dedicated employee who can be motivated to give their best. The productivity can be kept high, targets can be met and the organization is relatively insulated from a shortage of skilled workers. Hadzima (Hadzima 2005) suggests that the total cost of an employee that the organization has to bear is 2.7 times the basic salary. Different components such as recruiting expenses, basic salary, employment taxes, benefits, and others make up the costs. The basic salary varies between organizations but a basic minimum salary of USD 50,000 can be assumed. So this suggests that the total costs of the employee would be about USD 135000. A large software development project would require many developers and programmers and the employee cost can go up to a few million dollars. According to Willis (Willis Mushrush, 5 May 2002), the problem of employee turnover and attrition is quite severe and the average employee attrition percentage is 14.5 and it is estimated that it costs on an average USD 3600 to replace an employee. The hidden costs are that when an employee leaves, the organization has also lost the training and knowledge that was imparted to them.

Outsourcing or Insourcing

The concept of outsourcing IT development is accepted and is regarded as one of the key business processes to reduce costs. Many companies in India and China have been given software application development and maintenance work at the enterprise level, for quite a long time. These companies provide a number of services such as software development, database development and maintenance, content management, data warehousing operations, and so on (MachroTech, 2007). Insourcing is when vendors are allowed to work in the organization and take up routine tasks such as database management.

Benefits of Outsourcing

There are a number of benefits and these include not only savings in costs but outsourcing the services ensures that the organization’s staff is free from the development pressure and can take up the core business tasks. Outsourcing of staff or development work provides benefits in the areas of technical abilities and quick response to market requirements. The problem of what needs to be done with the extra staff, once the project is over does not arise (MachroTech, 2007).

Threat to losing control over the databases’ design

There are also some risks in outsourcing that need to be considered in outsourcing. One of the fears is that the organization may lose control over the database design. Having periodic reviews of the design and development can mitigate this risk. When complex databases are to be designed, there is a methodology used where the vendor has periodic meetings with the organization and presents a status review. The design is then continuously reviewed and closely monitored and thus the risk of losing control is mitigated. Other risks include data theft, the end product may not conform to the requirements, delay in delivery, business risks, and so on. These risks can be mitigated by using appropriate techniques, which form a part of project management techniques (MachroTech, 2007).

Effective on Competitive Advantage

Studies have suggested that outsourcing in fact increases the competitive advantage of companies. The companies that offer such services have dedicated and skilled manpower and experience. They are based in countries such as India and China where the manpower costs are much lesser when compared to the costs in Europe and America. These companies have developed methodologies and processes where the customer requirements are mapped to the development and design process. Companies that outsource work to such companies can obtain high-quality services at much-reduced costs. Key people in such organizations can devote their productive time to core activities such as manufacturing, marketing, product development, and so on. The competitive advantage also happens since there is a smaller workforce requirement (Hoffer 2004).

Conclusion

Database design and development can be outsourced to qualified vendors and this process offers advantages in the form of cost reduction and reduction in manpower besides increasing the competitive advantage. The risks of losing control over the database design are reduced if effective reviews, reporting and monitoring systems are in place.

References

Hoffer, Prescott and McFadden, 2004, Modern Database Management 8th edition
Hadzima Joseph, 2005, ‘How Much Does An Employee Cost’: MIT Sloan School of Management, Boston Business Journal
MachroTech, 2007, ‘Offshore IT Outsourcing’, Web.
MySQL, 2006. ‘A Guide to Lower Database TCO’.
Willis Mushrush, 2002, ‘Reducing Employee Turnover’, University of Missouri Creating Quality Newsletter, Volume 11

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