For most of my professional life, I have helped small and mid-sized law firms take advantage of their professional opportunities and ...
PREPARE COST PER SEAT ANALYSIS
EXPRESS ALL COSTS IN THIS ANALYSIS AS A COST PER SEAT
The purpose of this analysis is to determine the cost per user (seat) and to compare it to competitive benchmarks. If the cost per seat is high and the systems are inadequate, the decisions are easy. If the cost per seat is low and the systems are insufficient, you pay for what you get. If the cost per seat is reasonable and the systems are adequate or better, from a cost standpoint, we may decide to leave them alone.
Request General Ledgers for all technology and support accounts
Detailed General Ledgers (GL) list all of a firm's accounting transactions. Transactions are coded and sorted by account name or account number. If a firm is paying in expense in an area related to our work, it should show up in the general ledger. For example, the firm will likely code all computer support costs to the same general ledger account. All items listed in the general ledger will have a corresponding invoice to support the amount paid by the firm. It is likely that you will also have to request invoice copies to analyze the nature of the cost accurately.
At the beginning of our engagements, we request a detailed income statement and balance sheet. These statements will indicate the accounts that the firm uses and the amount of the period expenses. We should request detail of all general ledger accounts with balances related to IT Purchases and Support Costs. The balance sheet will contain items about longer-term assets (servers, network infrastructure, the higher-end computer that will last more than a year or two) and the income statement will include service and support costs, and lower dollar equipment purchases.
Long term assets are expensed (run through the income statement) as depreciation. Your cost per seat analysis will account for asset purchases (stuff in the balance sheet accounts) by considering the type of equipment, its age (how long has it been in service) and how long it is expected to last. It is possible that your useful life will not correspond to the firm's depreciation expense for the assets you are reviewing. That is okay. Many assets are written off based on the tax code, which often does not match reality.
Request relevant invoice copies
The detailed general ledger will provide some information about a cost but the description field is limited and often does not contact enough information to accurately assess a cost. Our analysis seeks to identify recurring costs and material purchases that may impact the cost per seat analysis. We are not doing an audit so we want to limit the number invoice copies we request to recurring costs and purchases in excess of $1,500. We can aggregate routine expenses in our analysis in a general expense amount. We only need a copy of on recurring cost invoice. If the terms of the recurring cost are not on the invoice, a copy of the vendor agreement is necessary. Remember to cross-reference invoice copies to contracts or service agreements.
Request pricing agreements (hourly, per seat, other)
Pricing agreements are necessary for any recurring cost or repeatable purchase. As IT costs are primarily service and equipment related. most pricing agreements will relate to support contracts, maintenance contracts, licensing fees, and any equipment buying agreements. Most firms do not buy equipment using a structured process so it is unlikely that they will have hardware purchasing agreements. Our analysis does not include printers or other output devices (multifunction copier/printer/scanners) and we do not need information about those costs. Our analysis seeks to compare the cost of running an IT system in-house with a completely cloud-based approach. Printing and scanning is something that will continue for the foreseeable future in either approach. Eventually, different methods for creating deliverables will become relevant.
Request vendor listing
Understanding a firm's important vendor relationships is an important aspect of evaluating the feasibility of moving a firm to cloud. We need to identify where we will find allies and where we are likely to meet resistance. Vendors who are threatened by cloud-based approaches will likely work their contacts within the client firm. Understanding a firm's current vendor relationships will help us assess the role any one vendor might have. Current vendor contacts can also have a significant role in the process of moving a firm to the cloud..
Prepare cost per seat analysis
The cost per seat analysis is where it all comes together. Using a template, we will calculate the on-going cost per seat. A seat is a user and is the common denominator of how we will measure cost. In a cloud-based approach, the cost per user is almost always wholly variable, and a firm's costs can increase or decrease based on the number of users. In an on-premises approach, the cost per user is a combination of fixed and variable costs — for example, buying servers and depreciating them over time. The server cost is fixed but the licenses to use the software that runs on the server are typically variable, which means that it might not cost anything more to add a user to a server, but it will cost more for a license to run the software on the server. The outcome of the analysis is to compare the current cost per seat plus the necessary upgrades to a cloud-based solution. Remember to include the cost of staff time, vendor support contracts, equipment and security costs, licensing and any other cost related to on-premises and cloud-based approaches.
Prepare cost per vendor pie chart
A simple pie chart indicating each vendor's share of the firm's total IT spend. The point of this analysis is to identify those vendors who have a strong interest in avoiding change. This analysis will also indicate the firm's key vendors. The chart should indicate vendor name, annual spend, the revenue they earn per user, and the function they perform.
Prepare cost per function pie chart
Use the data from the per-user cost analysis to create a breakout chart of the impact that each cost area has on the overall cost per user. Examples include network infrastructure (servers), security monitoring, end-user devices (PC's), routers and switches, internet access, licensing, etc. The goal of this graphic is to indicate the apportionment of IT expenditures by function. In other words, what is the benefit received for the cost expended (what it does, and how much does it cost to do what it does)? We will compare these individual areas to a cloud-based approach, which should involve fewer relationships and less cost detail. Some of a firm's current costs will remain and could increase with a cloud-based approach. For example, we may have to increase internet bandwidth.
Prepare comparative cost analysis (against our benchmarks) Deliverable
If our thesis is that Cloud-Based approaches reduce risk, support compliance with client requirements, reduce capital outlays and provide competitive advantages to law firms, this is where we have to bring all of the research and analysis together into a recommendation.
The availability of applications, real-time support 24/7 anywhere in the world, complete mobility, the elimination of infrastructure and many security issues, elimination of desktop software and storage, reduced end-user cost, and the ability to allow users to work on the device that best suits their needs (Chromebook, Mac, IPAD, PC, etc.) make cloud-based approaches superior. Our job is to help clients find their way to the cloud.