Why are Businesses Willing to Spend More for Software?

Lost Canadian Abroad asks: "As a software developer I have always found it strange that large companies are willing to spend obscene amounts of money for software development. Until recently I have shrugged it off as 'the cost of doing business', but something happened not long ago that has caused me to start questioning that practice. The more I talk about it with other people, who are business people themselves, the more irritated I get about the whole thing. Why is it that if you're not charging a company tens of thousands of dollars for a development project that you're not taken seriously?" I've always wondered about this, myself. This practice seems to contradict common sense. Is it that higher prices imply a certain degree of quality and/or assurance to managers? Do you think that businesses might be better off if they took a risk and tried the lower end of the costs spectrum?

"I recently had a the chance to bid on a contract, which I didn't win because of my estimated project cost. The winner of the bid had an estimated cost of $15,000 whereas my estimated cost was around $5,000 for the same project. The contract was not a complex project: a system comprised of database-generated web pages, with file submission and minor document management features.

I had, in about 8 hours of preliminary work, 50% of the website and associated back-end completed and had the rest of the site roughed out for what they wanted. The work is simple and I think almost anyone who has done similar types of site designs would agree with me.

The reason I got for not winning the project was that my proposed bid was seen as too low.

Does this make any kind of sense to anyone? Why would a company prefer to spend $15,000 on a project instead of $5,000."

Comments

management works in mysterious ways

[Anonymous Coward]

I think the answer is the same as to the question why Pointy Haired Bosses are Pointy Haired Bosses and not Pointy Haired Janitors, as their skills would suggest. Now, if I only knew the answer... =P

Sssshhhut up!

[Space Coyote]

You'll ruin it for everybody. Just sit back, and bill the extra hours while you play quake, no one will tell, really.

Re:Sssshhhut up!

[Cyno]

I don't want to have a job in a couple years. I've been working in the IT field for 5 years now and I've seen many things similar to this very topic. Capitalism is inherently flawed and everybody has to have noticed this by now. But nobody is willing to admit it or to try to do something about it, like replace it with a system that works. Management in corporations have too much power and too little knowledge to be effective as a leader. If they were effective they would be purchasing the most economical bid, but often they simply toss it out because it isn't filled with buzzwords or doesn't look pretty or isn't priced reasonably high. How can I put my trust and faith in a corporation that makes poor decisions with my limitted resources? I can't, so I don't, so I don't lose when the stock market crashes, and boy will it crash, again and again and again and again. How do we end this cycle of stupidity? We start making the right decisions, we start doing everything ourselves instead of outsourcing it, we high good competent people and treat them well and take care of them and eachother. We work together as a team to solve problems and make products, not to make quick decisions and throw around power and money like its a game. This is life, its not a game. You don't get any extra chances no matter how much money or how many points you win. But nobody will learn that very concept until so many of us have lost our jobs, ruined our homes, and destroyed countless business models and wasted years of work, pushing shoddy half-ass outsourced products out the door prematurely, just to collect the few extra pennies that make us happy.

Proof

[Anonymous Coward]

MS is expensive and their stuff is Awesome so it makes sense

So it seems...

[devilkin]

Well, the school i used to attend had a hack-in problem (IIS). We offered to set them up a linux-firewall using iptables with stateful inspecting and everything on it.

They declined the offer saying 'that they only trust something that costs money'.

Who will ever understand...

Re:Its not just in software development . . . .

[SirSlud]

> blowing smoke up my wazoo

That sounds like an interesting lawn centerpiece. What are the bids for something like that like? ;)

Seen it in the gov't

[iiii]

I had a related experience while working in the gov't. A manager had a great idea and put together a small team, 5 people, to try it out. I was on that team. We built a prototype web system based on his idea, perl generated web pages hooked to a db. People loved it.

Then, for the second iteration we went to java and built a much more sophisticated, interactve app. The brass loved that even more.

They decided it was really worth doing and therefore they must spend money on it. They initiated the monstrous government procurement process. It took some eight months or more, but finally a coalition team with Oracle and IBM and others won the $35 million contract.

After much hoo-ha, meetings, requirements gathering, countless billable hours, and the generation of untold linear yards of documentation, they finally decided to build something quite similar to our first prototype. And, after several years of work, with a team of dozens of contractors, that's what they have.

It's like the management said, "We love this, therefore we must spend millions of dollars to have it be exactly the same." But surely some assistant director's budget doubled, thus increasing their dominion, and people got to put on their resume that they oversaw a $35M contract. I'm sure everyone got awards and promotions for successfully disposing of all those unwanted taxpayer dollars.

Sigh. No I'm not bitter, I swear. :-)

Re:Seen it in the gov't

[pubjames]

After much hoo-ha, meetings, requirements gathering, countless billable hours, and the generation of untold linear yards of documentation, they finally decided to build something quite similar to our first prototype.

I can believe this. An organisation I once worked for wanted an IT-based staff directory to replace the paper one which was becoming increasingly costly to keep up to date. This was in about 1996. I put togther one exactly meeting their requirements using perl and html in a couple of days. The CIO (who was a very senoir grey-haired-suit who liked to talk down to the junior IT staff) looked at it and said, "How many days did you waste doing that? I suppose it can be used as a protoype to show the bidding companies when we put it out to contract..." Eventually they decided to get an IBM shop to implement it with Lotus Notes. After much expense, many months and countless meetings, they had their system.

Meanwhile, I had sneakily put the version I created on the intranet, and many staff were using it. Of course the CIO didn't know anything about it because he didn't pay much attention to the intranet - thinking it was just a toy put together by the junior IT staff that was going to be replaced by Notes in the future.

He decided to unveil the Notes system at a huge meeting with all staff present. The IT Manager thought it would be his moment of glory. He did a slick presentation, including saying how much he had spent on the development and how leading-edge it was. He then demoed it and asked for questions. When the mic was going round the hall, staff were asking things like "why have you spent so much money on this to copy what we've already got?", and "that looks much more difficult to use than the current system, what's the point?" etc.

He successfully deflected the first few questions with management-speak, but the staff detected they were being bullshitted and got increasingly angry with his answers. He dug himself deeper and deeper into a hole until he had bring the meeting to a premature end and leave in a hurry.

It was one of the most joyous moments of my professional career. It was a complete disaster for the CIO. His contract wasn't renewed a few months later. I was promoted.

They eventually got rid of Notes, and they're using the system I developed to this day.

Re:Business Logic? An Oxymoron?

[Kintanon]

Bah! Mating has nothing to do with it! It's all of those RPGs we've been playing for the last 30 years! Where the more expensive something is, the better it is. You KNOW that if you step into a shop, and that rusted out helmet costs 25,000gp, but the shining gold and platinum helmet next to it costs 125gp, the rusted Helmet is a mystic artifact that is WAAAAY better than the shiny one! So of course, everyone now knows that the more expensive something is the better it is!

Kintanon
Vide Game Slave

Risk

[Anonymous Coward]

The article contained the answer:

"Do you think that businesses might be better off if they took a risk and tried the lower end of the costs spectrum?"

Business is all about managing risk. Applications ("business process") tend to be or be part of core functions in a business. The more widely an application is used the higher the risk if something goes wrong with it.

I think that many managers look at the 'extra' money they pay as a form of insurance.. if something goes horribly wrong with the product they can whip out the old "We paid a _lot_ of money for this product and we want it fixed _now_" line (I've been on those conference calls).

So the question becomes costs versus risk:

One guy working out of his garage with a $1,000 product. This guy could throw up his hands tomorrow and abondon the whole thing.. or get hit by a bus.

A company with 300 employees (i.e. lots of people to 'escalate' to), a reputation and a responsibilty to its shareholders to not only stay in business but to make a profit (thereby ensuring that it will/should be around for a while) selling a product with the same features for $10,000.

Which looks more attractive to a business person?? Generally the $10,000 product because you can "buy down" the risk with cash upfront.

Charles

Support Project Gutenberg! Distributed Proofreaders

And the Lesson to be Learned Is?

[Lavos]

Always keep an eye on your junior employees when you turn down one of their ideas or they'll backstab you later.

Actually, it sounds like that CIO was a prick with no real vision for the future. Sounds like he was real fun to work with.