The Hidden Costs of Legacy IT Systems — And How AI Cuts Them in Half

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Legacy IT systems may seem stable and reliable, but that stability is often an illusion, as it holds your business back from growth. 

Over time, legacy systems are harder to maintain, update, and scale, as they no longer comply with modern trends and technologies. However, a lot of organizations stick to legacy systems, because their modernization is a complex process that includes a lot of stages and decision-making. 

In this blog post, we’ll explain why legacy systems slow down your organization’s growth, reveal the hidden costs of legacy systems, and show how to automate system migration with AI.

Why Legacy Systems Drain Your Budget

According to the Mc Kinsey, 70% of software in Fortune 500 companies was developed over two decades ago. Updating and maintaining these systems often exceeds the development cost itself, accumulating technical debt and draining the company’s resources. 

That’s why it’s crucial to modernize legacy systems to improve operational efficiency, comply with security standards, boost customer experience, and find new ways to innovate. 

Below is the list of the main legacy system challenges that impact the financial health of your organization.

High maintenance costs

Usually, legacy systems require more time and resources for maintenance because of complex code, data silos, and outdated frameworks. 
Let’s take the financial industry as an example. The maintenance of financial legacy systems eats over 80% of IT budget. In addition, companies add new features on top of old technologies, making such systems even harder to update. As a result, companies spend more on maintenance than on innovation and digital transformation.

Poor user experience

Legacy systems often lag behind current industry trends and customer demands, since it’s challenging to add new integrations, improve performance, and update its features. As a result, organizations that rely on legacy systems fall short when it comes to adding new features that boost customer satisfaction.

Security and compliance risks

Legacy software is more vulnerable to cyberattacks, as it is not designed to withstand modern cyber threats. The more outdated and poorly structured the software is, the more difficult it becomes to identify security vulnerabilities and implement effective security measures.

Development and integration costs

Since legacy systems are built on outdated programming languages like COBOL, finding skilled developers is hard and expensive. 60% of organizations that use COBOL find it extremely challenging to hire new developers. As a result, it leads to various performance issues and increased downtime, since there is a lack of experts who can update and improve current systems.

Income loss

According to the report, banks that do not upgrade their systems could miss about 42% of their possible income just in payments alone. At the same time, by modernizing their legacy systems, banks have a potential to save about 21% of their costs annually.

But that’s not about costs only. Legacy systems make your organization less agile and innovative, and, as a result, less competitive in the market. 

The good news is that you don’t need to replace your legacy systems all at once. This is an incremental process and even small upgrades will pay off in the long run. 

Below you’ll find the list of steps to make your transition process smoother.

Step 1. Perform IT Audit To Learn the True Price of Old Tech

Software modernization is a complex process and in order to make it effective, you need to analyze and evaluate your current system first. It will help you to find its bottlenecks, assess risks of moving to a new technology, and create a step-by-step roadmap.

There is a list of the main areas our team usually analyzes during the IT audit process.

Architecture

We analyze the current system’s architecture and answer the following questions:

• Does the current infrastructure support any new integrations and updates? 
• Is it scalable enough to comply with current business requirements?
• Are there any architectural bottlenecks that influence a system’s performance?
• Is the system able to handle increased load?
• Is the system easy to maintain?
• What is the level of codebase quality and how can it be improved? Is there any outdated functionality? 
• Are downtimes regular and how do they impact your business performance?

Security

During the security audit, we scan the system for vulnerabilities, check its compliance with the main industry regulations and perform penetration tests. Usually, legacy systems do not support the latest security updates and standards, that’s why it’s crucial to address security issues as soon as possible.

Here are the main questions that should be answered during a system security audit.

• Is the organization compliant with relevant security standards and laws?
• Where is sensitive data stored, processed, and transmitted?
• Is there multi-factor authentication (MFA)?
• Are firewalls, IDS/IPS, and monitoring tools correctly configured?
• Are employees trained in cybersecurity awareness?

General performance

Before updating legacy systems, it is essential to identify the main problems within the system and prioritize them according to their severity, impact, and risk level. It will help to focus on the areas that impact business performance and fix them in the first place. During this stage, we analyze the following:

• What features impact your business performance first and need to be fixed as soon as possible?
• How does the system affect user and employee performance?

Technology choice

Also, during this stage we pick technologies that suit your current tech requirements. For example, you can modernize legacy systems using AI, decreasing the costs of migration. 

Before using AI, we recommend creating a clear roadmap to make sure artificial intelligence delivers measurable business value and financial return.

Step 2. Use AI To Build the Roadmap That Pays Back

We at Teamvoy provide AI consulting services to help you create a structured plan that aligns technology with business goals and budget. Here is how companies can track the efficiency of AI integration into their legacy systems and build a roadmap that pays back.

Implement cost mapping

Cost mapping is a detailed analysis of current operational costs to identify areas where AI can save your resources. By understanding where money is being spent and where losses occur, you can find out which AI tools have the highest financial impact.

Create analytics dashboards

Dashboards provide real-time analytics on business performance, system efficiency, and the tangible results of AI-driven processes. With the help of dashboards, you can monitor key performance indicators, track progress toward strategic goals, and quickly identify any issues. 

Track ROI

The creation of an ROI (Return on Investment) model ensures that AI initiatives remain financially beneficial. The ROI model includes implementation costs, projected savings, revenue growth, and long-term benefits. With such an approach, companies can make data-based decisions and clearly understand the economic value of AI.

How AI Turns Audit Facts Into Savings: Benefits of updating legacy systems with AI

Before implementing AI solutions for legacy systems, we recommend starting with an IT audit. It helps to identify the weakest areas in your system and start from integrating AI into those areas first. After that, our team will build a strategy to rebuild outdated systems and improve their performance.

Our technology modernization process consists from the following steps:

• Analyzing your current infrastructure and identifying the main issues that impact your company’s performance, security, and compliance
• Suggesting tools, frameworks, and updates to modernize your current processes
• Creating a detailed roadmap and modernization timeline to stay on the same page

Our team handles the entire process of AI automation for legacy systems – from initial discovery and design to deployment, integration, and long-term support.

If you want to upgrade your legacy system and need consulting on what to start with, consider our IT audit services. We’ll provide you with in-depth and unbiased analysis of your company’s technology and a detailed IT audit report. Don’t hesitate to contact us and discuss the best ways to modernize your tech stack.

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