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Why do estimates from technology companies vary so much?

18th June 2012
Categories: prices

It's a question I've been asked a few times over the last 15 years I've been working in the IT industry, and things haven't changed.  While you can only get a very small spread of prices if you want to buy, say, a loaf of bread, curry, or a laptop, asking for a bespoke computer solution can elicit responses from 'well within budget' to 'way off the scale'.  

I beleive that the problem is twofold, and lies both with the customer and the supplier.

The customer

While specifying "exact requirements" is pretty easy with a laptop (250GB hard drive, no optical disk, 13 inch screen, 4GB memory, Windows 7 64 bit please), it's less easy with a software system or even a website.  What you're buying isn't delivered in a small black box; it's a team of experts who understand not only your business but also how best to build future-proof and useful systems. The tendency not to regard a website or business system as a return on investment doesn't help - if it's an expense, I want the cheapest please!  It has to do X, Y, and Z, and be quick about it!  Good customers first work out how the technology will help them, and convey this carefully in their requirements specification, as well as buying the best, in order to help themselves in the future.

The supplier

In a crowded market, the customer is king.  Or at least that's how they are sometimes perceived. This perception can be felt most strongly by struggling companies, who need the sale no matter what, and are therefore prepared to offer cut-throat prices in order to get it, even making a loss in the process. Because of these, you may get wildly differing prices for what is basically the same perceived system.

What can you do?

If you're specifying a business system right now, discuss your expected return on investment with your suppliers.  There may be a fear of doing this because you think it may raise the price, but they'll be just as keen to show you that they're the best of the bunch who can deliver the right technology.

Also make sure you go to at least 3 suppliers, and when you have your estimates in, ask each supplier why their estimate is so different from the others (if indeed it is). This will enable you to get an idea of the differences in approach and the differences you might be seeing in a finished product.

Finally

What has changed over the years is that certain types of business problems have become easier to solve with off-the-shelf technology - for example, if you had asked for a shareable online spreadsheet system 15 years ago, it would have cost you dearly, but now you can simply use Google Docs for free.  But as with healthcare, this only raises the ambition of the buyer, who wants to solve increasingly complex problems. Are you over-stating your problems, and could you get a return with a simpler solution?


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