Legacy system modernization, or the process of updating software to newer platforms, environments, or architectures, can be a costly prospect — so much so that businesses sometimes hesitate to undertake modernization initiatives because they’re worried about runaway expenses. Even if continued reliance on outdated software platforms wastes money, the alternative — modernization — may seem even more unpalatable from a financial perspective.
I’m here to tell you this doesn’t have to be the case. While there’s no denying that legacy system modernization can be expensive, it doesn’t have to be financially wasteful. With the right modernization strategy, it’s possible to migrate to more efficient, scalable, and secure platforms without letting the process eat up an outsized chunk of your IT budget.
The Financial Challenges of Legacy System Modernization
Modernizing legacy systems can be daunting from a financial perspective for several reasons.
- Large Upfront Costs
First, modernization projects sometimes require a large, immediate expenditure. For example, businesses may need to purchase new servers to host a modernized platform. They may also need to invest in outsourced development services to perform the code refactoring work necessary to modernize applications.
Large cost outlays present challenges from a financial perspective because they can eat into cash flow and reduce the funds that the business has on hand to support other initiatives.
- Specialized Skills
Modernization projects require specialized skills — and those skills come at a price. To modernize a system, you need engineers who are versed in both the legacy technology your business is currently using and the modern alternative you want to migrate to. Paying for this expertise can be expensive, especially for businesses that use the approach of hiring full-time staff to implement modernization. - Large-Scale Modernization
Modernization projects often take place on a large scale. They typically involve updating not a handful of applications but dozens or possibly hundreds, and they often take months (or sometimes years) to complete.
Supporting a modernization effort at scale requires a sustained financial commitment. This can place a strain on businesses that don’t have extensive cash reserves to draw on or that need to devote financial resources to additional priorities while managing a modernization project.
Companies often hesitate about modernization because they’re worried about runaway expenses, but with careful planning, cost optimization can become an integral part of the process.
- Risk of Revenue Loss
A poorly planned and executed modernization project could disrupt critical business services if the applications that power those services experience downtime. When that happens, the business may lose revenue — and experiencing revenue loss when you’re already spending a lot of money on a modernization project is kind of like being kicked while you’re down. It makes the financial strain even worse.
How to Cost-Optimize a Legacy System Migration
The challenges I’ve just described are those that businesses face when their approach to legacy system modernization lacks financial expedience or optimization. But they’re not unavoidable. Practices like the following can help to minimize the costs and financial strain associated with migrating out of legacy platforms.
- Know What Not to Modernize
Not everything hosted on a legacy platform needs to be modernized. Some applications can be scrapped altogether because they no longer serve a useful purpose. Others can potentially remain where they are — on a legacy platform — if there are no financial, security, or performance benefits to be gained by migrating them.
The point here is that, to save money, it’s important to determine what does and doesn’t actually require modernization. Don’t waste cash updating applications that won’t benefit.
- Modernize Gradually
To reduce the financial pressure that modernization creates, businesses can opt to modernize over a period of time. This means that they gradually migrate apps, one by one, to an alternative platform, rather than trying to move everything overnight.
The ultimate costs of this gradual approach are likely to be about the same as those resulting from a more rapid modernization initiative. But because this strategy spreads costs out over time, it mitigates the strain that modernization places on the business’s finances.
- Reuse existing resources
Rather than rebuilding everything from scratch, reusing existing resources — including both code and infrastructure — can significantly reduce the costs of modernization. The more existing application logic or code you reuse, the less money you have to spend on refactoring or redevelopment. And, if you can repurpose the servers or other hardware that hosted your legacy applications, you can offset some of the costs associated with migrating to newer infrastructure platforms. - Consider the Cloud
The Cloud is an obvious destination for legacy applications for many reasons, such as the scalability and flexibility that the Cloud provides. But from a financial perspective, a major benefit of migrating legacy apps to a Cloud platform (such as SAP S/4HANA Public Cloud, a Cloud-based alternative to legacy SAP hosting environments) is that it allows you to avoid the upfront capital expenditures associated with purchasing new infrastructure. Instead, you can simply pay as you go. - Leverage Automation
The more migration work you automate, the less you have to pay human developers to refactor code, migrate applications, and so on. This is why, for example, I advise clients during modernization projects to take advantage of LLM models to automate the processes of analyzing business logic in existing applications and updating them as necessary. (Specifically, my company is currently using LLM technology to assist with the process of helping customers conform with SAP’s Clean Core initiative, which often requires making significant changes to application code prior to moving to modern SAP environments.)
Automation tooling is an investment, and businesses already daunted by the costs of legacy migration are often not keen to spend even more money on automation tools. However, in the long run, the right automation technology can save a lot of money.
- Monitor Migration Costs
It’s hard to minimize costs if you can’t see how much you’re currently spending. That’s why it’s critical to monitor your modernization project continuously. In addition to detecting project issues, such as processes that are taking longer than expected, monitoring can also clue you into cost overruns, allowing business leaders to take action before the problem grows worse.
Conclusion: A Cost-Effective Approach to Legacy System Modernization
No matter how you approach it, moving out of legacy platforms and architectures is a significant financial commitment. But the right financial strategies can spell the difference between a modernization project whose costs run far out of control and one where every dollar is spent wisely and effectively.
Published: CDOTrends
