Consider the Source

Pulling the Renegotiation Levers

Dale Hearn of TPI’s Financial Analysis Services Group will be "blogging about the bottom line" this week.

Of the many factors that come into play during sourcing decision-making, financial drivers within the existing contract are critical.

Companies must decide whether to renegotiate their contract with their current provider (re-source), choose a new service provider, or bring the services back in house (in-source). Several clients that I worked with over the past couple of years made a conscience decision to renegotiate with their current service provider based solely on the overall financial implications of the deal.  For more information, check out my colleague's whitepaper.

Service levels, client satisfaction surveys, balance of trade issues, and executive relationships all had an impact in renegotiations, but the most important factors for these clients were based on the NPV (net present value) and profit margins over the term of the deal.

Mapping Personnel by Service Tower

Today's guest blog on personnel considerations in IT outsourcing comes from Ray Bender, Senior Advisor, TPI.

How critical is quantifying the number of personnel who support the services you are evaluating for a potential IT outsourcing engagement?

Staffing and personnel costs generally form a significant portion of every IT budget. The percentages vary depending on the type of services being considered for outsourcing. Application development, maintenance and help desk services are on one end of the spectrum with a high percentage of labor costs, while mainframe and server support services are at the other. The percentage of staffing costs for network services depend on whether telecommunication carrier expenditures are part of the budget or a separate expense category.

The better you know the staff supporting the function and their corresponding expense structure, the better you will be able to develop a sound business case on which to base your financial evaluation.

Deal Financial Management 101

Ted Botzum of TPI’s Financial Analysis Services Group will be "blogging about the bottom line" this week.

The only thing that doesn’t change is change. Even before you go live, you can rest assured the environment is different from when the contract was signed. Heck, you know it was outdated when you signed it!

As we all know, a lot of time and effort is spent on understanding the financial value of sourcing contracts (aka “business case”) during the bidding and negotiations process. While this is absolutely required, much of it will be for naught if focus in this area is reduced or removed once the agreement gets inked.

Server Consolidation within Outsourcing Contracts

Guest blogger Carol Wright of TPI’s Financial Analysis Services Group “blogging about the bottom line”

Service providers are increasingly touting “server consolidation” as a sure way to cut costs in IT sourcing contracts. Providers typically offer guaranteed price decreases based on a commitment to reduce the total number of client servers. However, guaranteed decrease in price shouldn’t drive hasty contract signing.

The two primary alternatives include: consolidation guarantees within a sourcing contract via contractual price reductions, and project by project consolidation efforts.

Should your Service Provider also be your Bank?

Each week TPI’s Financial Analysis Services Group will be “blogging about the bottom line.”  The group’s first guest blog comes from Tim Langley-Hawthorne, Director at TPI.

IT asset management is generally a pain. Most clients I’ve worked with struggle to do a good job at this basic task.  When considering IT outsourcing, the natural temptation for clients is to get out of the IT asset business, and have the service provider take over asset management and ownership responsibilities.

But the objective to clean house and transfer IT asset ownership to the service provider may be in conflict with the company desire to achieve ongoing financial savings from outsourcing.