Annual reviews will help a UK manufacturer cut a fifth of its IT
spend this year
The benefit of regularly evaluating IT contracts has been
highlighted by a UK manufacturing firm that reckons its contract
management programme will reduce its IT spend by 20%, about
£300,000, by year end with further savings anticipated.
Radiator and boiler maker Caradon Plumbing began re-evaluating its
IT-related contracts and centralising them in a Lotus Notes
database in the IT department at the beginning of the year.
The project was the brainchild of Chris Jessop, head of technical
projects at Caradon, who says that previously the company had no
idea about the number, nature or value of its contracts. A key
problem was that they were held by different departments and some
were not included in the IT budget. Gaining an overview was
crucial.
The company has identified 200 contracts and aims to halve this by
year-end, weeding out poor value contracts and renegotiating better
deals for the remainder. Jessop says the key to renegotiating
contracts is having good information about contracts and when they
are up for review. Caradon has also created a new process whereby
any new contracts have to be added to the database before they are
approved. A key aim is to keep contracts short - preferably one
year - so the company can renegotiate them sooner.
"The market is moving so aggressively that a good deal now might
not look so good in 12 months' time," he says.
Caradon's improved transparency highlighted some areas where major
savings could be made. It has renegotiated its mobile phone
contracts which will reduce its mobile fees by 40% - a saving of
about £88,000 - over the year. The company plans to replace some of
its leased lines with internet protocol virtual private networks to
further reduce its IT spend and will review its landline
carriers.
The firm's renegotiated contract with its maintenance supplier has
cut its annual PC hardware maintenance costs from £70,000 - Jessop
calculated that this equated to about £800 each time it phoned the
supplier - to £20,000, a saving of £50,000.
Quick wins for cutting IT spend are hard to come by and the value
of effective contract management should not be underestimated. It
can also boost the credibility of the IT department within the
business.
"This exercise not only gives us a real picture of the cost of IT,
it ensures we have confident, accurate information on our current
contract commitments and is driving down the cost of IT to the
business," says Jessop. "It builds trust and will add credibility
to my role and gives me a better standing within the organisation.
Going forward I will also have more chance of getting funding from
the board."
How Caradon made the savings from renegotiating its
standard contracts
PC hardware maintenance was costing Caradon
£70,000 a year. It worked out this equated to about £800 a call,
often more expensive than replacing the affected equipment. The
contract it renegotiated has reduced this figure to £20,000
A new contract for handling mobile phone calls
will reduce fees by 40%, about £88,000, over the year
Support costs for its computer-aided
engineering system hardware have dropped by 30%
Its renegotiated maintenance agreement for its
private branch exchange telecoms network gives better service and
is 10% cheaper.
Tips for better contract management
Document everything and store all contract
information in a central accessible place
Re-evaluate, re-evaluate and re-evaluate again
- can you be certain that all of your IT-related contracts are
delivering value for money?
Keep the lifetimes of contracts short so you
can review and renegotiate them regularly
Keep track of when contracts are coming up for
renewal to ensure the company has a stronger negotiating
position
Try to cut down on the number of suppliers you
deal with, without putting all your eggs in one basket
Find your main pain points, such as telecoms,
and look for alternative suppliers
Don't stop at the contracts - try to negotiate
more favourable service level agreements at the same time