Several factors are considered when deciding whether to develop a new information in-house or to go for outsourcing. Total Cost of Ownership or TOC is an important concept when making such a decision. A firm needs to consider various factors when deciding to build in-house software. Sometimes, the firm does not have enough human resource to develop and implement a system itself. Since, a firm that is into other main business does not have extra human resources to work on the development of a new information system and at the same time providing support to the existing system. This constraint leads to a lot of slack or wastage of time when developing a new system. Similarly, since it is not the firm’s main business, the firm might have hardware constraints. They might not have the specialized hardware and software that a specialist will have.
However, one disadvantage in buying COTS is that the firm developing the software might not have inside knowledge of how that information system will be used. They might miss out on minor, but important details. These details may not look very important, but they may be important in making strategic decisions of a business and as a result, buying COTS may not solve problems. Although, many developers offer the option of customization and updates, but then again, these options come with extra cost and may not be feasible for the company, if it is looking to improve its business, or trying to expand it. COTs may simply not be powerful enough to support the larger businesses that the organization is planning to achieve in the years to come. This is where in-house development is considered better than buying COTs information system.
Another important factor that is considered when deciding whether to buy a COT or to develop an in-house system, is the effect it will have on the daily operations of the business. It will be very adverse for a company that tries to develop an in-house system at the expense of daily operation support. For example, a company may have limited number of people’s in the IT department. This number may be enough to support daily operations, but it may not be enough to develop a new information system. As developing the information system is a different job, the number of people may be too small and this may hinder the efficiency of these people in the daily operations and overall business might suffer badly. In this case, buying COTs and customizing
It can be concluded from the above discussion, that whether to develop an in-house system or to buy COTs depends upon the resources that an organization has at its disposal. It is a good idea to develop the system in-house because of the details needed and other factors that may not be familiar to the specialist firm that does not have insight into the business and business process. A good alternative may be to develop a working team consisting of both in-house developers and members of the company that is developing an information system for the company. This will bring in inside knowledge along with expertise to develop a system that is not only cost effective, but also efficient and extremely useful for the company.
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