Financial evaluation of software solutions

Off-the-shelf (OTS) vis--vis Open Source Software (OSS) Healthcare IT Solutions

Analysis

The following assumptions have been made.

Large multi-speciality hospital with complex requirements

All amounts are in ` lakhs (00,000).

Cost of OTS S/W

` 400.00

Maintenance cost of OTS S/W per year

20%

Training cost per person in OSS S/W (lump sum)

` 1.00

Salary cost per person per month (in case in-house)

` 0.75

Salary cost per person per month (in case outsourced)

`1.00

Total number of persons implementation

40

Total number of persons maintenance

20

Rate of inflation (%ri)

16%

Weighted Average Cost of Capital (1.5 x %ri)

24%

Calculations

Y0

Y1

Y2

Y3

Y4

Y5

OTS S/W

(` 400.00)

(` 80.00)

(` 80.00)

(` 80.00)

(` 80.00)

(` 80.00)

OSS S/W in-house

(` 40.00)

(` 360.00)

(` 198.00)

(` 217.80)

(` 239.58)

(` 263.54)

OSS S/W outsourced

` 0.00

(` 480.00)

(` 240.00)

(` 240.00)

(` 240.00)

(` 240.00)

D

NPV OTS SW

(` 499.70)

NPV OSS SW in-house

(` 616.58)

` 116.88

19%

NPV - OSS SW outsourced

(` 687.45)

` 187.75

27%

Mid-sized (300 bedded) multi-speciality hospital with simpler requirements

Cost of OTS S/W

` 40.00

Maintenance cost of OTS S/W per year

20%

Training cost per person in OSS S/W (lump sum)

`0.10

Salary cost per person per month (in case in-house)

` 0.30

Salary cost per person per month (in case outsourced)

`0.40

Total number of persons implementation

10

Total number of persons maintenance

5

Rate of inflation (%ri)

16%

Weighted Average Cost of Capital (1.5 x %ri)

24%

 

Y0

Y1

Y2

Y3

Y4

Y5

OTS SW

(` 40.00)

(` 8.00)

(` 8.00)

(` 8.00)

(` 8.00)

(` 8.00)

OSS SW in-house

(` 1.00)

(` 36.00)

(` 19.80)

(` 21.78)

(` 23.96)

(` 26.35)

OSS SW outsourced

` 0.00

(` 48.00)

(` 24.00)

(` 24.00)

(` 24.00)

(` 24.00)

D

NPV - OTS SW

(` 49.97)

NPV - OSS SW in-house

(` 59.24)

` 9.27

16%

NPV - OSS SW outsourced

(` 68.75)

` 18.77

27%

Conclusion

The analysis reveals that there is a 20% on average higher cost to client if they go in for open source software instead of OTC.

There is a pay-off/opportunity cost if the open source software happens to be World VISTA that is mature and proven. The implementation time for World VISTA is roughly 18 30 months. Notably, it has no billing module and uses MUMPS as its programming language.

Explication

        The ` 4 crores (` 400 lakhs) figure assumed for OTS S/W is based on the assumption that the hospital is a large hospital else they would not opt for World VISTA at all in the first place

        COTS suppliers will charge an annual maintenance fee whose industry rate is 20% of cost of software

        These numbers are based on solutions as opposed to platforms

        Support provided is maintenance, upgrades within the same version (or even later, depending) and troubleshooting/help-desk at no extra cost during the validity period of the annual maintenance contract

        Comparative figures are uncovered if a simpler solution is considered

        In-house implementations will require training in the technology to be imparted before implementations take place

        S/W Engineers trained in MUMPS will demand a higher salary as compared to other technologies

        It is assumed that there is a 10% increase in salary per year for in-house personnel

        It is also assumed that outsourced companies will cost their resources on a higher figure but will neither charge the client for training that they will absorb it themselves instead nor for increase in salary as they have already factored that in when billing

        The attraction for outsourcing is to minimize the overall commitments, instead of just looking at overall costs the outsourcing companies will take the responsibility of the entire HR while ensuring that the requisite number of personnel are continuously available to run the show