Friday, February 13, 2009

Money for Nothing, and Projects for Free

I was working on a recent business case for a client and even though the return on investment for the project had very compelling returns, was conservatively built on savings that could be banked on 100%, and with a quick payback, the IT executive was still in a bind.

The virtualization project required a modest $300,000 initial investment in licenses, labor and services to deliver a pretty much locktight $500,000+ per year in savings over the next three years. These were not pie in the sky soft benefits, but consisted of power bill savings, an additional $200 credit on each of 700+ servers to be retired, and data center space savings, not to mention the reallocation/resale potential for the 700+ retired servers (which were not being counted).

The IT executive had been tasked with delivering substantial budget cuts, as many have been in these times, so a project like this was welcome, but pushback was plenty.

In order to save money, the company has already made IT headcount cuts, which every group has had to do. Doing this first however left his group substantially shorthanded and ill equiped to do much of anything but "keep the lights on".

With the few resources remaining, and with more cuts needed to meet the aggressive savings goals, the remaining team first looked to cut additional low hanging fruit, which was a wise move. For example, e-mails were sent to users to collect up any spare PCs or other assets that weren't being used. Taking advantage of whats already in place and renegotiating supplier / provider contracts was first on the list and did deliver some benefits. However, with these easier projects drying up and more savings needed, the team really needs to do more projects like the one proposed.

More aggressive programs, in particular programs like data center consolidation, virtualization, and legacy software retirement / consolidation were clearly needed. But this executive like many others has been asked to cut costs without the labor needed to implement the cost cutting programs, or potential to invest additional capital or service investments needed to deliver the savings.

Herein lies the opportunity for the saavy solution provider or vendor. In the near term a give is needed, but the vendor helping this client needs to figure out a way to implement the proposal with no money out of pocket will be the winner. From the proceeds of the savings, could the company approve the project?

First, the vendor could delay payment until the power company rebate checks are made. This could alone be used to pay for the professional services needed to help the company plan, setup and deliver the solution.

Second, the vendor could enter into subscription licensing and spread the license payments out on a monthly basis, maybe on a graduated scale as the solution is deployed to affect and is delivering the promised utility bill and lease savings.

The key is to revist an old concept of mine - an ROI SLA, and for the vendor to rethink how the sale can be made and paid for based on actual delivery of returns, or at least spread out the payments to match the promise of these returns as is proposed here.

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