Spend Matters welcomes this guest post from Abinaya Govindarajan, of GEP.
Cloud is everywhere. IT organizations are making rapid changes to their systems to move to a SaaS model and are battling the data security versus convenience dilemma. Here are the things that procurement definitely needs to look for when negotiating cloud deals:
- Setting up tiered pricing: One of the biggest advantages of moving to cloud is to adopt a pay-as-you-go model and to scale up or down depending on the requirement. Before signing the deal, it is imperative to make sure that pricing obtained reflects this scalability. Buyers can negotiate discounts based on estimated volume and set up tiered pricing for other volume levels. The tiers could be based on number of users utilizing the subscription service, amount of space used and more, depending on the context.
- Specify additional affiliate volumes as add-on to existing usage: If there are multiple business units/affiliates that could benefit from the same subscription service, insert language explicitly to state that the added volume is on top of the existing volume to take advantage of discounts at higher tiers.
- Clarity on pricing metric: It is also required to get clarity on pricing metric. For instance, pricing for 500 users could mean total number of users, number of concurrent users, number of active users in a given time period etc. This should feed into resource planning — allocation of resources (users) per shift, increasing shifts, etc.
- Include all optional costs: You can always pick and choose functionality at any time. Predetermine all possible requirements and set the costs prior to signing the deal.
- Support: Most cloud providers offer different levels of support – Platinum, Gold, Silver, etc. For some low-priority subscription services, a second status of support could be more than enough. Performing reference checks and seeking recommendations from other clients of the provider will enable wiser decisions.
TCO for the Total Period of Use
There is no doubt that moving to cloud will mean lower upfront costs. That being said, it is imperative to perform a TCO for the foreseeable term of use of the SaaS to determine if going the cloud route is an economical choice. For on-premise costing, make sure to include maintenance costs, warranty costs and in case of cloud, evaluate additional infrastructure costs and security costs (if any).
Paying When Not in Use
In a number of cases, the SaaS model gets deployed in the configuration phase, months before production. Organizations pay for the subscription even when not fully in use. This can be countered by negotiating to use a minimum number of users before scaling up for production. Sandboxes, proof of concept environments, can also be taken advantage of, if available.
It is mandatory to negotiate certain legal terms before beginning engagement with any cloud vendor. Clauses for liability, IP ownership of software customizations and enhancements (work product), data ownership throughout the lifecycle, regular data backups, location of servers, return of buyer data during termination, etc., need to be inserted into the agreement. It is also recommended to include a security questionnaire along with the RFP/RFQ packet and responses can be evaluated and scored.
SLAs and Vendor Response Times
Uptime expectations, planned outages, audits, priority levels and response times are the commercial terms that need to be clearly set forth in the deal. Uptime measurements on rolling basis (not calendar month), drop in service levels in a 30-day period (billing typically monthly) can be used for setting up service credits.
Setting up a checklist based on the items listed above will enable organizations to navigate the cloud purchasing process.
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