Build or Buy? The Hidden Costs of Developing Tech In-House

“If you want something done right, do it yourself.” It’s a familiar phrase, but is it true?

At first glance, it stands to reason that an in-house solution should be the perfect fit. However, if there is one constant in today’s business world, it’s change. This is where an in-house system can be problematic.

If you have to handle everything in house, how fast will you be able to adapt to …

  • New legislative changes
  • New lines of business or locations
  • New reporting requirements
  • New data privacy, security assessment and infrastructure certification requirements

Understanding the Hidden Costs

The cost of building and maintaining an in-house solution is often underestimated. If you consider the cost of a employing qualified business and development team, the numbers add up fast. It’s important to take note of the secondary or hidden costs that are often overlooked, such as:

  • Training
  • Knowledge Transfer
  • Documentation
  • Maintenance
  • Infrastructure Costs

Scope Creep Adds Complexity and Costs

Scope creep is the common tendency for projects to increase in size and complexity over the life of the project. Your initial goal may only be to support claim handling practices, but scope creep can occur quickly.

Employee Turnover and Lost Knowledge

Employee turnover is a serious concern. When you build an in-house program, what happens when the in-house experts are no longer with the organization? Without a proactive knowledge transfer process, you’ll find yourself stuck with a proprietary system that no one knows how to use or fix.

The Proof Is in the Numbers

Let’s assume that ABC Company intends to develop a solution to manage claims nationwide. They first consider the cost of staffing. Based on average salary information from Comparably, you might be looking at the following expenses:

+ 5 Senior Developers at $137,097 each: $685,485
+ 2 Business Analysts at $83,799 each: $167,598
+ 3 Data / Network Admins at $60,857: $182,571
= Total Annual Salary Cost: $1,035,654

Estimating six to nine months for initial development and testing, the employee cost alone can range from $517,827 to $776,740. The opportunity cost involved with taking developers away from core projects is yet another factor to consider.

Time-to-Market Costs

Now let’s consider ABC’s time-to-market issues. ABC’s competitor, XYZ Insurance, is nipping at their heels in pursuit of next-generation claims service. The difference is XYZ has chosen to use a third-party claims system that can be deployed immediately.

Meanwhile, ABC Company finds themselves less effective, less productive and unable to meet the same standards of customer satisfaction. They have been forced to build departments responsible for maintenance, system updates, testing and infrastructure security. What started as a cost-savings decision has forced them to become a technology business, splitting their focus to keep up with the changes in both the insurance and technology worlds.

Conclusion

Building an in-house system is not always a bad idea when highly specialized requirements exist. However, if your organization is likely to experience change or employee turnover, a third-party solution merits further investigation.

While it’s true that to get something done right, you sometimes have to do it yourself, it’s also true that you shouldn’t have to reinvent the wheel.

Download this guide to share with your team.

NEWSLETTER

SUBSCRIBE TO NEWSLETTER

EXPLORE

MORE TO EXPLORE