Analyzing Costs in the Last Mile of the Complex Software Purchase
Spend Matters welcomes another guest post from Rich Staas of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom, and shipping.
Not all software purchases are created equal. Purchasing three seats of a graphic design tool for your marketing department is one thing; purchasing a complex software suite such as ERP or CRM for a medium to large entrprise is another. Even after you have established your feature/function and technical requirements, there are endless questions that must be asked and answered as you decide which vendors to invite to the table, down-select your short list, dig into implementation scenarios, define ecosystem impact, and perform due diligence.
That’s just a taste of what happens during the vendor selection phase. So, it’s no wonder that the last step of the purchase – price negotiation – is often cut short. By the time the negotiation arrives, most buyers are ready to stop talking about their IT problems and start solving them.
The problem is that vendors know this. They expect buyers to lose a little steam after they complete due diligence. That’s why it’s important for buyers to commit the appropriate amount of time and employ all of the tools and resources available to them during the contract negotiation in order to (1) avoid overspending and (2) build in as much future flexibility as possible. There are many questions that need to be explored and optimized, including:
- Is the pricing bundled? If so, what is the detailed pricing for each line item?
- If they bundled the costs, are they including modules that may or may not be used in the future as part of the bundle? If they include items you won’t use, will you be paying recurring maintenance on them? What happens if you unbundle them?
- What license types are contemplated now, and for the future?
- If professional services are included, have they broken out the resource levels, number of hours, and rates for each?
- What determines if something is deemed out of the original ccope of work? What are the costs of increases in scope?
- Do the number of hours per resource level seem reasonable?
- Is the maintenance percentage based on list or purchase price?
- What is the possible uplift on maintenance per year? With uplifts, how many years will it take until the buyer is essentially buying the product over again?
The last mile of the purchasing process is just as important as the first. Incorporating pricing benchmark data and vendor-specific contracting intelligence can be the difference between a fair market value purchase or being contractually obligated to overspend over the term of the contract.