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Hidden costs of legacy systems

When your information system was first built – it was a significant investment to get the processing speed, capacity, and training in place to set it up. All that investment and the critical processes that rely on those systems can mean it is difficult to justify the cost of a brand new core system or the addition of yet another business application. Yet in almost all cases, a new and more automated cloud-based system will end up costing you less in the long run. But the cost of acquiring a new system is not the only factor you need to consider when comparing systems.

Enterprise systems and application maintenance

1. Enterprise systems and application maintenance

As systems age, they need more labour intensive, specialist maintenance, as well as costly updates, patches, and licensing fees to keep them compatible with more modern systems. It has been estimated that the cost of maintaining existing systems is around 75% of the average IT budget. Over 15 years, you can expect to spend another $766,000 in maintenance on a $1 million system. As the system ages, the costs will continue to increase. Moving to a cloud-based solution can increase agility, reduce costs while improving service levels.

Cybersecurity breaches

2. Cybersecurity breaches

Older, unsupported systems are more vulnerable to security breaches and cyber-attacks. Data and IP can be exposed if systems are no longer supported with security patches and updates. In Australia, the average cost of a data breach in 2020 was $3.35 Million – up 9.8% from the previous year. Data breaches cost an estimated $163 each per lost or stolen record. If prosecuted, companies face penalties of up to $10 Million, or 10% of company turnover for data breaches.

Operational costs

3. Operational costs

Using outdated systems adds a heavy burden to your operational costs via repetitive, manual processes. Data entry costs can be reduced by up to 75% with newer systems while automation and redesign of business processes can reduce operational costs by up to 20%, and increase productivity by 6% per year. This means staff could be achieving more, or redeployed to other more meaningful projects that add value to your bottom line.

Transaction costs

4. Transaction costs

Making the switch from customer service managed interactions to customer-led interactions quickly adds up to big savings. Providing access to digital options like self-service portals and apps offers customers greater convenience while reducing the cost to serve. For instance, online and mobile banking transactions are estimated to cost $0.09 and $0.019 respectively. In contrast, the cost for an in-person transaction is $4 per interaction.


5. Non-compliance

Aging legacy systems have been flagged for compliance measures by AUSTRAC and APRA – with every stage from employee to customer touchpoints under the microscope. With every process from money laundering, insurance fraud, privacy regulations through to compliance with GDPR data protection, through to HR systems that ensure you are paying your staff their entitlements – legacy systems that struggle to keep up with changes quickly become a liability and could cost you millions. Non-compliance can also have more than just a financial cost for the business – penalties can also include fines against individuals and possible jail terms for severe compliance breaches.

Knowledge and training costs

6. Knowledge and training costs

Maintaining legacy systems means hiring specialist developers, or calling them in for emergency repairs – often at a much higher cost. Hiring a COBOL programmer costs around $90,000 per year, whereas a JavaScript trained developer costs between $60,000 to $75,000 per year. Keeping and retaining the knowledge of legacy systems – which parts do what, how they fit together, what to do when they break down, creates a dependency on the knowledge keepers and an ongoing training burden for organisations.

Customer experience

7. Customer experience

Customers expect to find exceptional service from any channel such as customer self-service and on-demand communications, instant approvals but adding these capabilities to legacy systems and applications is likely to be complex and expensive. Upgrading to cloud-based solutions that provide greater scalability and automation, broader channels of communication, and integrity of data analytics leads to intuitive personalised marketing and customer service – a strategy that can cut customer acquisition costs by as much as 50%.

Employee experience

8. Employee experience

If your employees are unproductive, unmotivated and frustrated – your legacy system could be to blame. Their frustration from working on outdated systems with overly manual tasks, duplication of work and dealing with customer frustrations from constant downtimes and technical troubles can leave them looking elsewhere. High staff turnover isn’t only bad for morale – HRM Online estimates that it costs $11,000 – $25,000 to onboard each new employee.

You can choose to stick with the status quo and accept these costs or explore the benefits of digital transformation. CoTés scalable, cloud-based enterprise experience management (EXM) platform virsaic™ helps unify disparate technologies allowing you to replace legacy systems and applications with a single solution. This can help reduce costs, improve customer experience, employee experience and streamline compliance. CXM platforms let you deliver engaging two-way interactions through any channel and intelligently automate key business processes for greater agility, performance and control of your organisation at every interaction.