Monday, October 15, 2012

Why Office 365 is no option in a European Tender

Maybe you recognize is scenario. A local government company is merged from three other local government companies to be more (economical) effective. These three local companies however all run a separate IT infrastructure. The next logical step is of course to integrate these separate IT infrastructures into one new IT infrastructure. The most common decision is to create a new "greenfield" IT infrastructure where the IT services of all three companies will be merged into one new platform.

Once the project is initiated the new company often need to have external expertise in how to create it. In Europe this plan needs to be bought via a "European Tender". This procedure is often complex and sometimes misunderstood. But the tender is mandatory so not negotiable. Basically in a "European Tender" suppliers have the choice to sign up. Once this phase is done and all suppliers are known, the suppliers receive documentation about the requirements and wish lists and are asked to make a quotation. This quotation will be divided into chunks (like investment plans, overall plans, project plans and the solution itself) where the supplier receive points for. The supplier that has the most points has won and can start the project.

So far so good, but where does it goes wrong?

Well a big portion in scoring points is the initial investment of the complete project. This means the amount of money that is needed to implement and finalize the project within means and time. The tender often doesn't look at the Total Cost of Ownership (TCO) of the complete duration of the project.

To be more precise. A project always consists of multiple phases which are:

1.   Initiating a project

2.  Planning and directing a project

3.  Managing product delivery (implementation)

4.  Managing project boundaries (monitoring)

5.  Closing a project

A project manager or initiator however often thinks his/her project is ended when the actual implementation or execution phase is done. Now this is where it goes wrong. Every project is has a life cycle. The life cycle of a project is from the initiation phase until the completion phase. The completion phase is however, despite what most people think, not the end of the implementation but the whole economical life cycle. As an example:

On September, 1st 2012 a company states that, if it wants to compete and still be cost effective, it needs to have a new IT infrastructure. Now the project is initiated. The company states that the economic life cycle of the new infrastructure needs to be five (5) years. However the implementation of the new infrastructure needs to be finished on March, 1st 2013. Now a project manager is assigned to successfully implement the solution within time and means, and does it before March, 1st 2013. Now the project is released and considered successful.

This is wrong thinking however. The implantation of the new solution is finished and was successful. Yeah! However the project (economic) life cycle is five years. This means that if you want to see if the project brought a success you need to calculate the TCO and the ROI (Return on Investment) over the complete five years. It could be that over these five years the project turned to be not so effective. Therefore the project was in this case not successful.

Ok and what does this have to do with the subject?

Well everything actually! Because the economic calculation of a (public) cloud service like Office 365 is on a monthly and per user base, the calculation of the initial investment needs to be done over the complete life cycle. In the case of the example this is five years. Where an on-premise solution is only calculated on the investment needed to deliver the new infrastructure and not on the complete life cycle.

Basically in an on-premise scenario the costs of hiring employees, server maintenance, technical life cycle, cooling, etc is not considered as a financial post in the project. Therefore a traditional solution (on-premise) is per definition cheaper if you only count the initial costs. If you however, calculate the TCO and ROI like you should do, a cloud based solution is often not more expensive and in most cases even cheaper.

And since most points in "European Tenders" are given based on the initial costs, a cloud solution is "often" not an option.


Considered all the facts and theories, the title should have been "Why Office 365 is often no option in a European Tender". Because of two reasons:

  1. The word "project" is often misunderstood and misinterpreted. If the project is handled as a project then the points in case of investments should go to the most economic friendly solution over the complete life cycle.

  2. The tender rules are often misinterpreted by all people involved in a project. There is nothing mentioned in the regulations about initial investments. If you want the give both solutions an equal chance you should calculate the TCO and ROI of both solutions as equals, so during the complete life cycle.

I hope my post brings people a better understanding in how you can have different perspectives about calculating the success of a project/solution.

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