The Cost of Risk


Sunken ShipI’ve written before on the zero-sum game that we play when we are evaluating most Content Management projects. We can choose the solution that will readily meet 80% of your requirements but has only a 20% of achieving all its goals. Our other choice is the solution that will only meet 30% of our goals but has a 90% chance of meeting the expected goals.

There is already reason to lean to the latter solution. The odds are good that at the end of the day you will have a working, though less capable, solution. When the alternative is nothing, that is pretty good.

Let’s see why it is even better than that.

Sunk Costs

For the sake of the remaining discussion, we will increase the chance of success of the  more functional project. That means the chance of success it now 30%, almost worth the chance over the other solution.

Now factor in the reality that most Software as a Service (SaaS) cloud solutions cost less than traditional on-premises solutions. Translation: a lower initial investment being gambled on success means a better risk-reward equation.

It is a fairly safe assumption that in year one, the cost of the SaaS solution will be less than half of the cost of the traditional vendor. If the 10% failure kicks-in, there is still money to try again.

With the traditional solution, you have a 70% chance of the project failing, which means that you have a 70% chance of that money being lost and people being burned.

The next question, when do you pull the plug?

The Project Timeline

This is simple math, the more requirements/features that you try to implement at any one time, the longer the project. The longer the project, the longer until you know if it succeeds or fails.

In the SaaS world, the odds are good that you will know your success is under a year. This is mostly because the number of requirements that can be implemented are limited in scope.

When dealing with on-premises software, push to get something live in ten months. It may not be everything but at least you will have some idea if the project will succeed or fail before that first maintenance bill becomes due. If it is going to take more than 10 months, you may be over complicating things for people.

Continued Investment

In the long-term, many cloud vendors plan to transform the 90% success, 30% functional comparison into a 80% to 60%. If that is accomplished while maintaining the usability, the math becomes more pronounced. In addition, those that choose the 30% option now will be getting new features, turning their 30% functionality into 60% without having a new project.

In six months from now, those 30% capable cloud vendors will be at 32-36% while the traditional vendors will be sitting exactly where they are now.