Interviews, insight & analysis on digital media & marketing

Tiffany St James: How to cost Digital Transformation

Tiffany St James is one of the UK’s most experienced digital transformation specialists, the founder of Transmute and former Head of Public Participation for the UK Government. She is also NDA’s monthly columnist.

You have a piece of string, right? How long is it?

How on earth do you go about predicting the costs of one year of digital transformation, or even five years?

In many public sector organisations, you’ll need to create a 5-year budget with evidence, you arguably should be doing that in any private organisation too.

Your factors will change, and there’s no magic number, but here are your considerations to help you cost your programme more accurately. Bear in mind, this is written for larger organisations. Let’s go!

Permanent Staff Cost

Do you need to include permanent staff in your budgeting?

For some organisations the cost of permanent staff is accounted for elsewhere. To get a true picture of your transformational costs I recommend you do include the permanent staff in full, or in proportion to the time allocation, they will spend on your digital transformation programme.

You can strip their costs out later, but it will give you a better overall idea and useful information for leadership, leverage, accountability and costs/benefits analysis.

We saw in last month’s column how to structure your digital transformation delivery team, the types of people you will need in your digital transformation unit. Some of the team, such as Service Manager and Product Manager should already be in-house, and a proportion of their time should be allocated.

Don’t forget your ‘on-costs’ for your permanent team, the proportion of people’s salary that contributes towards pension and benefits, this can be around 10% in some organisations.

Interim People Costs

Let’s envisage you have one digital delivery team, as you can scale up you costs from there. Let’s envisage that’s a good blended mix too of full-time staff, short-term interim and a few agencies/consultancies. It may look something like this:

  • An in-house Technical Architect
  • An in-house Service Manager
  • An in-house Produce Manager
  • Full-time interim staff of a Transformation Manager, Delivery Manager and Service Designer
  • Using an agency for the discovery including User Researcher
  • Using an agency for outsourced technical development

Finding the costs for each of your interim roles, if you don’t already have them takes a quick call to a couple of friendly recruiters, or a quick cruise of online jobs. Don’t forget to factor in agency supply costs on top of their day rate.

The day rates may be affected if your people are inside or outside of IR35, HMRC’s tax legislation.

Many public service bodies as well as banks are now subject to this legislation which compromises getting good talent in at existing day rates as contractors will be taxed at source. If you are an organisation operating inside IR335 you may have to up your day rates by up to 40% to get the right talent willing to do the job.

Agency Costs

The first stage of any digital change is the Discovery. Alpha, Beta and Live being the next stages. Many organisations outsource the Discovery to agencies and consultancies to unpack the problem that is trying to be solved, as well as the technical development in Alpha and Beta stages.

There are no set costs for Discoveries. From a good relationship with an agency that wants to prove its worth in working with you, a short product discovery may come in as low as £25,000, although double that is more than likely and some more in-depth Discoveries with the Big 4 have come in at 6 figures. The Discovery Stage should take around 6 weeks.

Stages Alpha and Beta can easily set you back £100,000 each to get the minimum viable product up, through testing and feedback, iteration to a live state. This includes your outsourced developer costs. Bear in mind these costs are for large complex organisations.

Other costs

Don’t forget to include the ongoing annual costs for software icences and/or hosting that is usually charged annually.

Once products and services are changed, that’s not it for ever. Running services and updating digital products over time will have Year 2+ costs. You’ll need to put an allocation in as a small percentage for tweaks, updating and moving forward. With a review in Years 3 to 5.

We’ve not accounted for hardware here. If you are also responsible for upgrading corporate hardware as CTOs and Heads of IT, and that’s part of your digital transformation programme, then of course account for that too.

Cost savings and leverage

In some cases, replacing your website, CRM or other large infrastructure, may actually have a lower cost than the existing service you are replacing. Great, instant cost saving there. Don’t forget hosting and licensing costs.

In some cases, the cost of not making an amendment, alteration or replacement will cost the business more. When making your business case for funds, always ensure you effectively represent the cost / benefit analysis of not replacing existing technology and what it will cost the business for no action.

How many projects?

How many digital transformation projects, update or overhauls of your digital products and services or a systemic business change you undertake will depend on the team you have to deliver that, the budget to deliver the team, and your ambition and strategy.

If you have one full-time digital delivery team, it’s likely that they can run 4-8 full projects in a year depending on the size of the project. Large projects might be an overhaul of your CRM, website or backend plumbing. Smaller projects may mean the change to a specific product, service, or the way a product has been brought to the market.

If your organisation wants to run the change programme faster, you’ll need to scale up the people you need to manage that.

This Digital Transformation series can be accessed on New Digital Age here.

If you have any further questions on your digital transformation you want to see answered in this column email Tiffany here or hail her on Twitter here.


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