This resource provides some pointers on how to save money on your next maintenance renewal, support contract or subscription. It is a guide to the webinar recorded on the 30th March 2017, available on demand here: https://cc.readytalk.com/cc/s/meetingArchive?eventId=socukfzr3cet
This resource will cover the terms and key principles in support and maintenance renewals, the opportunities for cost saving and renegotiation and how to project manage the renewals process.
Guiding Principles – Cut cost, not value
- The industry norm is to charge around 20% for maintenance, meaning over the course of five years you might end up paying for the software twice
- It’s prudent for any business to perform a cost / benefit analysis to see if a contract should be renewed, despite local departments who may wish to cling onto budget
- We are looking to cut cost, not value. We’re not looking to undermine services or withdraw valuable software – just eliminate waste
- Maintenance contracts are typically very profitable for software companies. They are usually very keen for you to renew and you will be made to look a fool for even considering not renewing, your role as Asset Manager is to challenge the status quo and question everything to ensure your organization is getting best value at best cost.
- Software maintenance – typically the right to have access to updates
- Software support – typically the ability to get email, phone or sometimes onsite technical support
- Software Assurance – also called subscriptions by some companies, typically a maintenance contract with added product use rights. E.g. Access to different versions
- Premium Support – an elevated level of technical support or access. E.g. receiving four-hour response to logged calls rather than the standard eight-hour response
- Forced Upgrade – being forced to upgrade to a certain version because the vendor is no longer supporting your current version.
- Security Patches / Vulnerabilities – critical flaws in products which leave them open to security exposure
- Major upgrades – e.g. Version 5 to 6. Typically chargeable.
- Minor or in-line upgrades – e.g. 5 to 5.1. Typically included in maintenance
The product version lifecycle
All products transition through a product lifecycle, from the current shipping version to the older versions that might be no longer supported by the manufacturer (End of Support, EOS). It is a critical part of the renewals process to understand what version you currently have in use and how that compares to the vendors EOS threshold.
IT Asset Management Best Practice
Recommendations for managing the renewals process:
- Centralized procurement and coordination of the renewals process – Global visibility of risk and economies of scale can only be realized with a centralized renewal process. Ideally organizations would benefit from a centralized view of renewals with a forecast of future renewals and risks.
- Team and Communication – The renewals process can’t be done alone by ITAM, it requires a cross-discipline team effort with regular communications to ensure momentum and continued commitment to the process.
- Contract analysis – Contracts should be analyzed as part of the renewal process to assess consumption, ownership and plans for the future.
The renewals team
The following four stakeholders should be present during preparation for significant high profile renewals. The goal is to understand consumption, requirements and future plans.
- ITAM – For visibility of current usage and rights
- Demand – Those actually using the software or system, such as a system owner or user representative
- Standards – Those responsible for long-term product strategy and infrastructure choices such as Enterprise Architecture or planning
- Procurement – Those responsible for securing a good deal at the best price
Obviously not all four parties will be at the table with every single renewal, as with everything else in ITAM, we must juggle our finite resources to maximum effect give the risks involved.
Questions to ask stakeholders before renewing:
- Should support be renewed?
- What are the support call volumes like? Quality of support or upgrades provided?
- What versions are available versus deployed?
- Planned upgrade and current usage?
- What is the business justification for the investment?
- What support is required versus current e.g. Premium?
What do you have?
- Do we have the right editions?
- What versions are installed?
What do you need?
- Existing maintenance versus new spend?
- Support requirements (Drop, change, Third party maintainer)
- Will usage grow or decline?
- Risk analysis (Emerging, Strategic, Tactical, Legacy vendor as per image below) see also http://www.theitsmreview.com/2011/09/segment-prioritize-vendors-suppliers/
Questions to ask when trying to identify contracts:
- What type of contract is it?
- What license type determines our usage? Will the renewal include the same license model?
- What metrics determine the maintenance renewal figure?
- Does the contract allow changes based on usage?
- Are there any risks or penalties for termination or adjustments, pause and resume later?
The importance of understanding contracts
The support policy below from Oracle underlines the importance of understanding contracts during the renewal process:
Oracle won’t allow a reduction in support based on lower consumption.
When to renew?
- At renewal time – with preparation beforehand to understand consumption, contracts and future plans
- Mid-term (perhaps during M&A activity or consolidating contracts, most publishers are open to it if it means a longer term commitment to them)
- New Purchase – the ideal time to negotiate, because sales people will move mountains to close a deal
- % Of list price renewal fee – try to reduce the percentage, check to see if the current list price would reduce maintenance in your favor.
- % Escalation – an annual increase in maintenance built in to some contracts, try to reduce or eliminate it.
How to modify contracts and reduce costs
- Change type / SLA
- Change volumes
- Move to time and materials / cost per incident
- Work with a third party maintenance firm
- Look at alternative suppliers / open source
- Drop altogether / go naked without support
How escalation and compounding hit costs
Scenario 1 – 20% maintenance and no escalation
Scenario 2 – 22% maintenance and 6% escalation (24% more expensive)
Scenario 3 – Using TPM, 62% cheaper than scenario 2.
Renewal Toolbox – Other techniques to consider
- Early renewal commitment (better terms if you commit early)
- Financial year alignment (align a deal to the vendors year end for better terms)
- Longer terms
- Blended TPM (Use vendor and TPM)
- Harness community / TPM / Consultants / SAM MSPs etc. (For insider advice on negotiations)
- Consolidate / co-term contracts
- Transfer rights (Determine what contracts might be utilized elsewhere within the company)
- Align to implementation / actual consumption (Ensure maintenance is being paid on implemented software, not future planned consumption)
Conclusion / Key takeaways
- Challenge the status quo
- Build a cross-functional team to reach the right balanced decision
- Always perform cost / benefit analysis to drive savings
About Martin Thompson
Martin is also author of the book "Practical ITAM - The essential guide for IT Asset Managers", a book that describes how to get started and make a difference in the field of IT Asset Management.
On a voluntary basis Martin is a contributor to ISO WG21 which develops the ITAM International Standard ISO/IEC 19770.
Learn more about him here and connect with him on Twitter or LinkedIn.