Digital Health Dissected

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How economics effects the cost of software

A basic understanding of how software is produced, the market value of those who create it, and some basic economic principles can help CEOs and private hospitals save money and deliver better value to stakeholders.

This is how:

​The labour intensive nature of software development
Software is a written work, much like an instruction manual. While tech writers write instruction manuals, software developers write instructions that tell computers what to do.

And like a written work, software development is an incredibly labour-intensive process. In fact, hundreds of thousands of hours may go into developing a new piece of software.

The high cost of software developers

Software developers are well paid. In fact, Senior Developers earn an average of $124,470 per year – far above the average yearly Australian earnings of $89,128.

Production vs marginal costs

There are two economic principles that impact the cost of both software development.These are:

·Production costs
·Marginal costs

Production costs are the costs that a business incurs developing the first copy of a new piece of software. These include expenses such as labour, raw materials, consumables, taxes and general overheads.

The marginal costs are the costs of producing the second, third, fourth copies – and so on –of this software.

What this means for software companies

The labour-intensive nature of software development combined with the high cost of software developers means that the production cost of the first copy of a new piece of software may be in the millions of dollars (of which up to 60 percent are labour costs).

However, the marginal cost of producing additional copies of this software is virtually zero. Why? Because reproducing software is as simple as copy/paste.

The takeaway

Software development is labour intensive, and the labour involved is expensive.

When investing in digital health software, try – wherever possible – to invest in an existing software product that does the job well enough. This will always be much cheaper than getting something custom-built or getting an existing package modified.

When deciding what 'well enough' means, consider what your hospital really needs and whether it adds value (many people spend a fortune on software changes that adds little). And, wherever possible, try to avoid investing in any software that costs more than the building it will be used in.

Build things of lasting value!

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Chris De Sair is Chief Operations Officer

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