Spend Matters welcomes another guest post from Jeff Muscarella of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom and shipping.
When it comes to maximizing the strategic payback of every IT budget dollar spent, there’s plenty of reason to worry. License programs change every day. Vendors are entering and exiting the market faster than most of us can count. And product usage rights are being scoped down to the point that many IT sourcing experts have to pause and wonder what they’re actually paying for.
Yet, all of these worries combined pale in comparison to the impact of maintenance creep. Computerworld recently shed light on the issue in a great article entitled “How to Balance Maintenance and IT Innovation.” Here’s an excerpt:
“In a recent Forrester Research survey of IT leaders at more than 3,700 companies, respondents estimated that they spend an average 72% of the money in their budgets on such keep-the-lights-on functions as replacing or expanding capacity and supporting ongoing operations and maintenance, while only 28% of the money goes toward new projects.
Another recent study yielded similar findings. When AlixPartners and CFO Research surveyed 150 CIOs about their IT spending and their feelings about IT spending, 63% of the respondents said their spending was too heavily weighted toward keeping the lights on.”
While many companies are turning to cloud computing, virtualization, and fewer customizations to reduce IT maintenance costs, just as many are overlooking the obvious – and that’s the fact that most companies pay more than they need to for IT products and services to begin with.
In 2014, every CIO and IT sourcing professional should be challenged to reduce their “keeping the lights on” costs. While this may inform new IT deployment initiative and strategies, the exercise should include stronger vendor management and contract optimization tactics.
This starts with benchmarking vendor pricing – especially maintenance fees. The margin is high on these costs, many of which increase year over year. Determine fair market costs and negotiate accordingly.
Additionally, companies need to view support costs with a critical eye. Do you really need premium support on 75% of your applications and hardware? Can you outsource to third-party support providers? Many companies deploy the latter tactic and find support costs decrease by 50% or more.
It’s important to note that this should be an ongoing process, one where companies conduct a major review of maintenance agreements across their entire vendor portfolio every few years and perform a needs-based assessment of the level of support required for infrastructure and applications. In many cases, this can outweigh or negate maintenance cost creep.
“Keeping the lights on” will always be a significant part of any enterprise IT budget – but that doesn’t mean it should be unreasonable. Optimizing current vendor contracts and expenditures is the fastest (not to mention most painless!) way to achieving a 50/50 balance between maintenance and innovation.