Purchasing Complex Software Solutions and Getting a Fair Deal

By Rich Staas

Director of Client Services, NPI

March 28, 2014

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Complex projects such as ERP, CRM or HR system purchases can be daunting to even the most seasoned IT professionals due to all of the moving parts and the time that it takes to see it to completion. There are many risks and questions that have to be asked when entering into this type of project. Even after you have established your feature/function and technical requirements, the questions that must be asked and answered are endless as you decide which vendors to invite to the table, down-select your short list, dig into implementation scenarios, define ecosystem impact and perform due diligence. How many internal resources and how much time is needed, and how will that impact day to day work during implementation and roll out? What are the risks of missed deadlines? The list goes on.

With all of those questions, and the time it takes to do your due diligence to answer them, the last step in the process is sometimes cut very short: negotiation of pricing, business and license terms. Vendors are fully aware of this, and have designed their pricing and negotiation process around it. They will submit "budgetary" quotes early in the process to test the waters and set a high foundation mark for later negotiations. By the time the negotiation phase arrives, you have been sold on all of the intangible ROIs as part of the vendor’s negotiation strategy. Most likely, you’re ready to start realizing the benefits of their solution and get the paperwork behind you.

But, good things come to those who wait – and this is especially true when it comes to negotiating complex software buys. It’s during this time that you will determine your TCO for many years to come. Committing the appropriate time to conduct a thorough IT costing analysis and employing all the tools at your disposal is the most effective way to achieve software cost reductions.

There are many things that you should be looking at in your proposals:

  • Is the pricing bundled and/or have they provided detailed line item pricing?
  • Are they showing you list price and discounts on your proposal?
  • If they bundled the costs, are they including modules that may or may not be used in the future as part of the bundle? If they include items you won’t use, will you be paying recurring maintenance on them? What happens if you unbundle them?
  • What license types are contemplated now and for the future?
  • If professional services are included, have they broken out the resource levels, number of hours and rates for each? Vendors sometimes like to hide these rates and should be pressed to show the details of how they came up with the costs.
  • What determines if something is deemed out of the original ccope of work? What are the costs of increases in scope?
  • Do the number of hours per resource level seem reasonable?
  • What is the maintenance percentage based on: list or purchase price?
  • What is the possible uplift on maintenance per year? With uplifts, how many years will it take until you are essentially buying the product over again?

As you explore all of this, one particularly vexing question is how do you know you are getting a good deal? Our recommendation is to allow market experts to go through all of the answers to these questions to determine whether it is within the range of Fair Market Value and recommend ways to get a "Best in Class" deal for your organization.