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How to Manage Risks Associated with SaaS?

Software as a service, for the past year and half, has been the most exciting and promising software delivery model.

Enterprise services such as ERP and CRM are now being offered even by the traditional players in this space that earlier seemed a little loath to move beyond their on-site offerings.  However, as with every technology, there are risks associated with SaaS and these can impact your business in a major way.

Know the Risks and Manage Them

  1. Data security – This is the number one concern for companies opting for the SaaS option.  For many companies, such as financial firms, third-party call centers, banking institutions, etc data security is too much of a concern.  Companies cannot afford to risk compromise of customer data, face customer’s wrath and an avalanche of lawsuits.  Factors that need to be considered include: vendor’s security policies; security inbuilt into the software; security measures, such as data encryption, intrusion detection systems, firewalls and protection against SQL injection attacks.  You should also be aware of what you need to comply with regarding data handling and the extent of the SaaS vendor’s liability in case data is compromised.
  2. Customization – The general perception is that SaaS lags behind on-site enterprise applications with respect to customization.  The multitenancy feature of SaaS, which enables it to be an inexpensive delivery model, also leads to SaaS software becoming too generic.  Get to know the extent of flexibility your business can achieve by opting for a SaaS solution.  If you achieve a satisfactory level of customization, updates to the software will also need to be customized and this can turn into a monotonous regular exercise.  Compliance with regulations like Sarbanes Oxley may also require more effort on your part, since the software is largely generic.
  3. Total cost of ownership – The usage-driven subscription cost of a SaaS model adds up over the years, as more users and features are added.  The cost of software, hardware and people also adds to the TCO.  Initially, SaaS does appear to be an inexpensive alternative to in-house software.  Also, calculating the TCO and making a business decision is easier with the traditional model.
  4. Vendor’s stability – A lot of vendors have jumped on to the SaaS bandwagon.  Before you enter into a long-term business relation with a vendor, you need to assess the vendor for its financial stability and capability to deliver on its promise. Steer clear from situations that could lead you getting stuck in an uncomfortable situation.  If the vendor decides to wind up operations, is he bound by the TOS to inform you in advance?  What happens to the data if he sells his business?  What if there is a change in the usage policies?  Get to know the answers to these questions.

The SaaS business model is driven by the premise of offering a sustainable fee structure.  It has gained acceptance quickly and there is no reason why you cannot benefit from it as well.

[Photo courtesy of oppenheimerfunds.]