How do you calculate the real cost of customizations?

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CIO / Managing Partner in Manufacturing, 2 - 10 employees
I normally multiply the initial cost of that customization by 20, and I work that out over time. I've seen how that cost increases so many times in different large companies. If a customization costs $50K, by the time you've redone that customization for each upgrade, taking all the extra testing into account over a lifespan of 10 years, it will probably end up costing you 20 times that initial spend. The business says that a $50K customization is justifiable, but is it worth $1M? That's the calculation you need to make and educate people on, because it’s the real cost you’ll be dealing with over time.
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CIO Strategic Advisor in Services (non-Government), 2 - 10 employees

That's a great point and we've done this in infrastructure for as long as I can remember. You buy a $5K server, but when you add in all the loaded costs over the lifespan, it’s a $25K server. So is it worth $25K? Because at the end of that four or five year cycle, we'll be doing it all over again.

Advisor | Investor | Former CIO in Services (non-Government), Self-employed
The cost of customizations over time ties back to the value of IT. We're starting to see more and more of the business taking on these customizations. Sales Ops will configure their Salesforce environment and Finance Ops will take care of their ERP, etc. Without some governance, that will get you into situations where folks make the change because the CRO or CFO is making a request, but no one went back to educate that executive on the real cost of that change. If they knew that the cost would end up being 20 times the initial spend, would they still want that change? Probably not. But it's interesting to see what will pan out over the coming years as more and more of it becomes decentralized. In the last 18 months I've been hearing more of this idea to decompose IT and parse it out until it just becomes the help desk again.
VP of IT in Healthcare and Biotech, 1,001 - 5,000 employees
This is not an often asked question but this is how I would compute for it:

Actual cost (in man-days x rate) or packaged product price
Addi: cost of enhancements
Total Year 1 Cost
Add: Annual maintenance cost @ 20%
Total Year-on-Year Cost

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