How to Determine the Total Cost of Ownership for Investment Software

When evaluating investment software solutions, wealth and asset managers need to look beyond the initial purchase price or licensing fees.  

The costs associated are so much more than the product itself, and these expenditures must be looked at through the lenses of Total Cost of Ownership (TCO).

As investment managers grapple with rising costs and “sluggish revenues”, no resources can afford to be wasted, hence a focus on total ownership costs.

Below, you will see what makes up TCO and how it encompasses a broader range of expenses throughout the software's lifecycle.

And ideally, with this expanded understanding, investment managers can make well-informed, financially responsible decisions.

What Defines Total Cost of Operation, Influencing Factors, and How to Calculate

8 Elements that Factor into TCO

1. Implementation and Customization

These are costs associated with configuring the software, integrating with existing systems, data migration, and user training.

2. Ongoing Licensing/Subscription Fees

Recurring costs for software access, updates, and support may apply. Pricing models can also vary, based on number of users, AUM, or tiered structures.

3. Infrastructure

Hardware costs (if running on-premises), cloud hosting expenses, storage, networking, and disaster recovery provisions should be factored in.

4. Security

Investment in cybersecurity tools, monitoring, penetration testing, incident response planning, and ongoing vigilance to safeguard sensitive financial data.

5. Maintenance and Support

These costs include technical support, bug fixes, troubleshooting, and accessing vendor expertise.

6. Upgrades and Enhancements

Costs associated with implementing new versions, adding features, or ensuring compatibility with evolving industry regulations.

7. In-House IT Personnel

If not fully outsourced, include the time and salary costs of internal IT staff dedicated to managing, maintaining, and troubleshooting the investment software.

8. Opportunity Cost

Assess the cost of productivity losses or missed opportunities due to outdated technology or inefficient legacy systems.

4 Factors That Change TCO

1. On-Premises vs. Cloud Deployment

Cloud-based solutions (SaaS) often shift infrastructure and some maintenance costs from the client to the software provider.

2. Complexity of Integration

Highly customized integrations with multiple legacy systems can increase both implementation and ongoing total cost of ownership.

3. Vendor Support Models

Evaluate the level of support included in licensing fees, and the cost of additional support tiers or incident-based billing.

4. Regulatory Landscape

Compliance with evolving regulations may necessitate software updates or additional security measures, impacting long-term TCO.

3 Ways to Calculate TCO

1. Gather Internal Costs

Work with your IT and finance teams to accurately quantify existing costs associated with legacy systems or manual processes that the new software aims to replace.

2. Request Detailed Quotes

Ask potential vendors to provide granular TCO breakdowns, not just initial purchase prices. Inquire about multi-year pricing models for predictability.

3. Factor in Long-Term Growth

Consider how your firm's growth, expansion into new asset classes, or increased regulatory demands might impact future TCO.

Understand and Take Control of Total Ownership Costs

Assessing the Total Cost of Ownership is essential for wealth and asset management firms to make responsible investment management software choices.  

And by carefully considering all direct and indirect costs, investment firms ensure alignment between their technology investments and the firm's long-term financial goals.

At Empaxis, we understand the importance of transparent and informed decision-making when it comes to investment software. Our solutions include:

  • TCO Analysis: Build a comprehensive Total Cost of Ownership model, comparing different software solutions and deployment options.
  • Value Beyond Cost: Quantify the potential ROI of new software in terms of enhanced efficiency, reduced risk, and improved investment outcomes.
  • Partnerships for Long-Term Success: We collaborate with you to optimize TCO throughout the software's lifecycle, ensuring your investment continues to deliver value.

Want to get the most out of your technology and operation and keep your total ownership costs under control? Contact Empaxis.

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