Why now may be the best time to consider replacing your legacy application
Article by Scott Driggs, Custom Information Services
When making the decision about Investing in a new solution vs. maintaining an existing legacy application there are many factors to consider. You need to weigh all of the costs of maintaining the existing application against the costs of implementing your new solution. What are the new benefits that you would hope to get out of a
How can you tell if you are running a legacy application?
As a rule of thumb, if you are running any of the following you are probably on a legacy system: Mainframe applications such as those that run Cobol on an AS/400, MS-Dos based applications, Green screen terminal emulators, or outdated midmarket solutions that have been sold multiple times to different software owners who have not invested in improving the solution.
What are my Risks?
Before we even start talking about cost… it is important to first talk a little about Risk. There are a number of risks that you should keep in mind when thinking about your legacy solution. The risks of the solution include hardware risk, software risk, security risk, and support risk.
Hardware Risk: In general, the risk of a hardware failure increases with the age of the hardware. Through the use of regular backups, failover systems, and redundant hardware this risk can be reduced.
Software risk: Many software companies support multiple products. Not all of these products receive the same amount of love and care when it comes to reinvesting in the solution. Be particularly careful if your legacy application is one that the software company is not making an additional investment in.
Security Risk: The security risk for legacy applications is typically rather low. The hardware and software that run them tend to be isolated from the outside world and have little opportunity to succumb to external threats. From an internal security perspective, adequate procedures and controls have usually been worked out years ago. As long as those are still in place and are periodically reviewed you should be good. There is one risk to watch for, however. As the number of system experts decreases within a company the risk of internal financial fraud increases. There have been numerous examples of financial and IT executives in recent years who thought they could get away with financial fraud because they were the only ones who knew the legacy system.
Support Risk: Whether you are supporting your legacy application with internal staff, through the software manufacturer, or through a value-added reseller of the solution I think we will all agree that for legacy applications, each year there are fewer and fewer people that could support your solution. Anyone who has had to go through this recently can attest that it is harder to find and secure the right resources to support your application.
Your Next Solution
Of course, putting in a new solution is not without risks either. The primary risks to consider when implementing a new solution are implementation risk, poor user adoption, and security.
Implementation Risk: This is the risk that the project will fail to achieve the desired business goals within the stated budget. Checking a partner's references to see how they did with other companies is one way to reduce this risk. Careful planning with your implementation partner can also reduce these risks. A thorough implementation plan with clearly defined roles and responsibilities for implementation consultants and the internal resources is vital. This plan should have a time frame and milestones associated with it. It is also important to anticipate potential challenging situations to make sure you and your partner are on the same page about how to deal with those situations as they come up during implementation.
Poor user adoption: Often with legacy applications, your staff has been using the solution for 10 or even 20 years. They know it and have become comfortable with it despite the solution shortcomings. If not given an opportunity to provide input in the selection of and design of the new solution there is a good chance that there will be significant resistance to adopting it. There is nothing worse than making a significant investment in new technology only to end up going back to your legacy application because of poor user adoption.
Security: Newer enterprise applications like
Will the new solution cost less?
To even begin to be able to ask this question, you need to first understand how much your legacy application really costs? Here are some of the major costs to look for:
- Employee Costs: Multiply the number of employees (can be fractional) by the salary + benefits of that employee
- Consulting Costs: Add up all of the money spent on consultants, programmers, and partners for your legacy system last year
- Hardware Costs: Divide the anticipated replacement cost of your hardware by the number of years of anticipated use… this gives a good estimate of the annual hardware costs.
- Energy Costs: A number of technologies including virtualization and processors that require less power have greatly reduced the energy requirement for newer hardware. Total energy usage can often be reduced between 3 to 10 fold. If you know your price per Kilowatt hour it can be easy to calculate your potential energy savings. Just look up the QuickSpecs for your server to find the energy consumption or pull out your electric bill.
- Software Costs: Annual maintenance paid to software vendor + custom development for the year
- Downtime Costs: If you have experienced any downtimes with your legacy application multiply the hourly rates of all employees affected by the number of hours of downtime to get an approximation of the internal cost. If revenue systems were affected by the downtime, estimate lost sales and add that number to the internal productivity loss.
Once you have a good understanding of what your current costs are for your legacy application you are in a position to make a useful comparison between your current solution and a new solution you may be considering. Of course, the inherent assumption is that at some point the legacy application will need to be replaced. The question really is when should you replace it. If all of your annual expenses on your legacy application are more than the implementation costs of a new solution then this decision is an easy one to make. More often, the numbers don’t work out quite so clearly. Your partner for the new solution can typically help in coming up with a realistic Return on Investment for the solution. Armed with this, it is simply a matter of comparing that with other internal projects that are competing for the same capital.
So back to the question at hand, Why is now a good time to consider making a switch?
In general, Projects take 3 things, time, resources, and money. During the upswing of the business cycle businesses typically do not have the time or resources to tackle these type of projects. That is why it is often best to embark on these projects during a downturn. Not only are time and resources more available internally, you can also get a better value for your invested capital. Not only is the cost of borrowing still extremely low but you also have many hungry software companies and implementation partners who will give you a better deal. For all these reasons, now may be the best time to look at replacing your legacy application with a current ERP solution like
If you want to find out how much your legacy solution is costing you, give CIS a call at 682-367-1699.