Cost and risk – two of the biggest drivers of change in a business. And when considering how to reduce both, there are good reasons to take a good, hard look into the relationships an organization has with its vendors and the contract conditions underlying those relationships.
Yet, simply reviewing contracts without context could put the organization at risk. There are a lot of dependencies on those contracts throughout the organization and lot at stake if a wrong move is made in changing the relationship with a vendor. In order to have a full view of the impact such changes could have, an organization should understand the architecture and projects that are associated with those vendors and contracts.
Many companies have a vendor risk management discipline in place but too few include the architecture and planning perspective. This leads to poor decision-making that puts business continuity at risk. Risks can be better mitigated when IT planners can answer questions such as:
- What are the contracts associated with a specific vendor and what risk implications can be derived from this - i.e. is the vendor reliable, financially sound and offering good support. How should contracts be changed to mitigate vendor-related risks?
- Which contracts are relevant for which business? What effect would changing a contract or vendor have on a critical part of the business?
- When do we need to be extending or renewing contracts to ensure smooth operations and continuation of projects and business processes?
- Which architecture elements depend on a certain contract deliverable, e.g., a resource or license pool? Is there any risk associated with this?
These risks not only impact business continuity but can also hinder strategy achievement. For example, how are contracts impacting consolidation efforts and strategic planning? Organizations should use vendor and contract KPIs such as contract volume, reliability, financial stability, product and portfolio strategy, locations and jurisdiction, and degree of lock-in as part of their evaluation criteria.
With regards to cost and the high cost of vendor products, costs can be better controlled when IT planners can answer questions such as:
- What kind of service levels does the contract promise and are they achieved? Where can this information be used to negotiate better discount levels for existing or new contracts?
- Which contracts are relevant for which business and how important is that part of the business to achieving our strategy?
- When do we need to be extending, renewing or cancelling contracts as related to enterprise change activities?
- How are contract deliverables used in the enterprise? Are all of the deliverables currently used? Is there more demand than availability for a certain contract deliverable?
Check out this webinar on how to include vendor and contract aspects into planning the IT portfolio to successfully deliver on strategy.