Breaking the Code of Digitalisation Cost in FM in 11 Moves
Cost of digitalization is a major concern of all businesses approaching digital transformation implementation as, by general perception, it is “awfully expensive!”
As in business everything ends up at the profitability bottom line, business owners’ main concern relates to the negative impact that an investment in automation of either digitized processes (digitalization) or manual operation (robotic aid) will have on their profit.
Profitability of a business, as a rule of thumbs, can be increased by raising the sales values leveraging on a unique feature or characteristic of the product/s or by a permanent reduction of costs via a simplification of all processes which requires investment in automation, and reallocating human resources to other strategic departments.
One thing, for sure, is allowed through the digitalization adoption, the real possibility of “buying time”! You are reading it right; digitalization and digital transformation adoption allow the otherwise impossible outcome of having spare time available to better analyze the organization, find the loopholes and improve efficiency and customers’ experience.
An often-unanswered question, in this regard, is on how to measure the cost reduction that digitalization adoption will bring over. Before we can try to reply to it, however, we need to determine the cost of implementing an all-in-one and fully integrated digital solution for Facility Management by summarizing some of the main components, as well as some important considerations that drive costs for facility and operation management companies of all sizes.
Key cost elements
When the time comes to choose the best digital solution for a Facility Management company, the decision maker will need to decide between licensed software and software as a service (SAAS), let's understand the main differentiation below.
Licensed Software
Purchasing the license of a software normally implies a one-time licensing fee that could be calculated as:
- an overall license paid once allows to use the software independently from number of sites or users.
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a site license which allows open number of users within one site only.
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a license based on number of named users authorized to log into the system
-
a license based on a specific module.
For higher-end software packages, the average price per concurrent user can be anywhere between RM20,000.00 to RM80,000.00.
Source code
When purchasing a software license, it may be worth asking about the source code, a kind of perpetual right over the software allowing others to enter the real back end of the system in case substantial modifications are needed.
Some software-houses bundle the source code with the software license fee, others release it only under escrow and some allow the upright purchase of the source code for a one-time lump sum which is normally quite costly.
Hosting
One of the great advantages brought over by FM digitalization is the possibility to work and check what teams are doing at any time and from anywhere. This brings in another important cost component, which is an off-premises hosting of the software by either the vendor, a third-party company, or the cloud. The advantage is that someone else manages the cost of hardware, space, labour, security, maintenance, etc.
The most recommended external hosting is the cloud as it allows to “buy more space” when needed via a quite reasonable increase of the monthly or yearly subscription. Some software service providers are bundling this cost within the price of their services, others are either recommending a third-party provider or taking care of the needed set-up and charging the customer back-to-back.
Cost here could be from as little as RM500 and up to RM20,000 per month depending on the size, configuration, and usage. A conservative average cost for facility and operation management company could be RM800 per month per site.
Software as a Service (SAAS)
To avoid a significant upfront license fee, many companies, in their digitalization journey, opt for a monthly subscription fee. The calculation varies from per site and number of users to many more variations of these two parameters. The fee, which could be monthly, quarterly, or yearly, usually covers all software costs, software updates, support, and sometimes even hosting, basic implementation, and training.
A short but important note here is needed to understand one of the less-considered differences between licensed software and software as a service.
While the first will allow a 100% tailor made and personalised solution, it will also require dedicating one person or team to deal with the software-house during the “software writing/coding” stage and an IT specialist to take care of it after its delivery. Software houses are particularly good in coding but have no experience at all on any specific industry which means the risk of misinterpretation, wrong SOPs or data flow during the digitalization process is remarkably high.
SAAS solution providers, instead, are normally having subject matter experts with them helping to design the software architecture beforehand and following the solution development. Margin of issues or hiccups is much lower with the latter. Cost wise we are looking at less than RM2,000.00 per month equivalent to a delivery boy salary!
Software Customization (mostly for SAAS solutions)
If any specific customization is required to adapt the software to better fit your needs, charges will occur. The recommendation is to keep the personalization to the lowest possible level as it might affect the operational efficiency of the chosen solution.
Best advice is to use the chosen SAAS solution for few months before requesting any customization, most of the times adapting to something already developed is more efficient and less costly when compared to “I want it all and I want it my way.”
Light customization is normally charged on daily rates spanning from RM3,000 to RM8,000.
System Maintenance
Updates, bug fixes and issues are common in digitalization and usually priced as a percent of purchase price in the range of 10 to 20 percent of license fees while for SAAS solutions are always included.
Technical Support
The cost for this service is usually included in the license fee for a limited period after which it is charged on an hourly basis ranging from RM200 to RM1,500/hour depending on the complexity of the problem. For SAAS subscription contract, instead, technical support is part of the service in a more “unlimited” manner.
Staff/Teams Training
The initial training, when the digitalization process is completed, is normally included in the onboarding costs. However, as life is a learning journey and understanding the full extent of the newly adopted digital solution is complementary to its complete implementation, the advice is not to cut back on training in the name of saving money. This is a big mistake, as training is your insurance that you will achieve a return on your software investment.
Training costs vary dramatically depending on the type of training (e.g., classroom, computer-based training, train-the-trainer, simulation, on-the-job, and so on). In Malaysia, though, there is the great advantage of HRDC Claimable training easing the related costs for SMEs and corporations while allowing the keeping-up with new features and a perfect understanding of the system potentiality.
System Implementation/Onboarding Fees
Digitalization onboarding costs vary enormously but a rule of thumb is one to two times the cost of the software. Normally include the follow up of a step-by-step system implementation, initial training, and minor personalisation.
Hardware Upgrade
Depending on the choices made, license or SAAS and hosting, hardware requirements may be astronomical or close to zero. An additional advantage of SAAS solutions is that a close to zero hardware investment is normally needed providing the facility management company has already a desktop, laptop and other commonly used portable devices; who does not have these nowadays, isn’t it?
Other Possible Costs
There are other budget considerations that are sometimes forgotten when upgrading or implementing a new CMMS such as cabling, minor facility changes and telecommunications upgrades.
At The End, How Much Will It Cost?
In Facility Management, an industry handling the most valuable of all assets or properties, the challenges, issues, emergencies and SOPs have been studied, discussed, rectified and perfected throughout the years and this brings in the idea that using a commercial SAAS solution, providing it is well established, well supported (technical and customer support wise) and above all fully integrated or all-in-one, would be the best choice in terms of efficiency and costing.
To have better idea of what we are talking about, imagine a middle-sized FM Company with a size of 40 to 100 people, out of which 20 will be the registered users, and several sites will end up with a yearly subscription of less than RM22,000. Translated in an hourly cost, just to compare it with the possible saving after implementation as the FM company will be able to relocate two or more of their staff to other functions, we are talking of RM12.20 or less than RM2,000.00 per month. At current rates this should be the taken home of a dispatch boy or office admin.
Start exploring the digitalization journey and do a planning for its implementation by reaching out to us here for a free demo session. This will allow you to fully understand the full extent of positive impact on your business and verify all the additional effort or additional costs in a more precise manner.
Check our blog often as next we will talk about all the benefits that digitalization of your FM company via a fully integrated and all-in-one digital solution for facility and operation management will bring over to your business!
ABOUT THE AUTHOR
The opinions expressed in this article are solely of the author, Dr Daniele Gambero.
Dr Gambero has been an expatriate to Malaysia from Italy, since 1998 and has more than 35 years of real estate experience. He is the co-founder and group CEO of REI Group of Companies, the Co-founder of Propenomy.com and the president of the Malaysia Proptech Association.
In the past 10 years Daniele, as international and TEDX speaker, has engaged several hundreds thousand people talking about Property, Economy, Propenomy, Digital Marketing and Motivation. He is also a bestselling author and columnist on several magazines and main stream media. You can reach him directly through his LinkedIn page here.
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