As the recession bites, businesses can lower their IT expenditure by focussing on the cost of their software maintenance contracts.
Ray Wang, principal analyst at Forrester Research, has listed five steps to tackle the on-going software maintenance burden IT departments face in his latest Software Insider blog.
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1. What did you pay this year for each support incident? Was this cost-effective?
"Maintenance costs represent a major part of the software budget and the largest growing source of revenue for software suppliers. Not surprisingly, suppliers are hard at work vigorously protecting their 70% to 80% margin in maintenance revenues, just as clients and readers of this blog now zero in on this line item as the major concession target during contract negotiations," writes Wang.
He urges IT directors and CIOs to put all contract information in one place with a history of interaction with the supplier. He says, "Most customers will find that for $1m a year, five support calls can be pretty pricey at $200,000 a pop."
2. How much software do you license that is not being used?
Software licences purchased, but not deployed still incurs support and maintenance fees.
For example, an IT department could be offered a three-year deal on a 1000 user licences at $1000 per user, but require software for only 800 users. If annual maintenance is charged at 20%, then the 200 unused user licences would cost the business $120,000 over three years, according to Wang's calculations.
3. What is your business' long-term plan? What software will you need to support this plan?
IT directors should establish a long-term, recession-proof plan for software upgrades and replacement. Users need to ask the following questions: "What business processes will be supported by the software? What roles will use the software? When will you upgrade? Can you consider an alternative?"
4. What are your software upgrade/maintenance options? Should you upgrade, switch suppliers or use third-party support?
IT directors need to assess alternatives - either buying maintenance contracts from their software suppliers, using alternative products or renegotiating the existing contract. "If there are no intentions to upgrade or enhance the software, self support and third-party maintenance options from suppliers such as Rimini Street and Spinnaker should be considered," says Wang.
5. Do the software company's sales reps know you are unhappy?
Long-term preparation is key to successful software maintenance contract renegotiation. "Put preparation on your side and begin to let your sales rep know three to six months in advance that you are unhappy with the current agreement. You now have the ammunition you need to negotiate from a position of strength."
Picture from Rex Features.