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  • Established 3 key, interrelated things
  • Established 3 key, interrelated things
  • Established 3 key, interrelated things
  • Established 3 key, interrelated things
  • Established 3 key, interrelated things
  • Established 3 key, interrelated things
  • Established 3 key, interrelated things
  • Established 3 key, interrelated things
  • Established 3 key, interrelated things
  • Established 3 key, interrelated things
  • Transcript

    • 1. Presented by: Rich Green [email_address] 860.275.8325 Let’s Make a Software Deal: Negotiating Best Practices in the Economic Downturn Presentation to: SIM Central Connecticut Hartford, Connecticut February 17, 2009
    • 2. What we’ll talk about
      • Negotiating flexible license rights to drive fee reductions
      • Negotiating fully aligned warranty and support terms to save up to 12 months of support fees
      • Negotiating better financial risk sharing in implementation
      • Avoiding common price traps in SaaS, ASP and hosted transactions
    • 3.  
    • 4. Some Basic Deal Anatomy
      • Product Agreement
      • Implementation/Integration Agreement
      • Support Agreement
      • Hosting Agreement
      • Service Level Agreements
    • 5. The Product Agreement
      • scope of legal rights for using the software 2. metrics by which use and thus pricing are measured 3. warranty rights and duration
    • 6. Scope of Rights and Use Metrics Named Users Concurrent Users Transactions / throughput Sites / Locations Enterprise revenues Perpetual Term Subscription
    • 7. Scope of Rights and Use Metrics
      • Pros and Cons to all models
      • Keys to negotiating pricing:
      • Information
      • Timing
      • Alignment
      • Alternatives
    • 8. The Microsoft Example Scope of Rights and Use Metrics Information – about actual usage helps decision to renew EA or go Select as well as whether to buy SA versus by-incident Support Timing – sufficient advance negotiation lets you demonstrate willingness to wait for OS upgrade or hardware refresh Alignment – of products licensed to actual business use can save thousands of dollars Alternatives – Microsoft believes you won’t walk away, make sure they know, or at least think, you can (Linux, MySQL etc.)
    • 9. The Product Agreement Warranty rights, timing and duration can be used to save up to 1 year’s worth of support fees.
    • 10. Timing Warranty and Maintenance to Drive Savings Key Support Commences / Defects Remedied as Part of Paid-For Support Warranty Expires Warranty Commences Option 2 Support Commences / Defects Remedied as Part of Paid-For Support Warranty Expires Warranty Commences Defects Remediated at No Cost as Part of Implementation Option 1 Support Ends unless Renewed Defects Remedied as Part of Paid-For Support Warranty Expires Warranty / Support Commence Vendor Approach Months 37-60 End of Month 36 Months 25-36 End of Month 24 Months 13–24 Go-Live / Production Use End of Month 12 Agreement signing through Month 12 Red = Fees Charged Green = No Fees Charged
    • 11. The Implementation Agreement
      • scope of vendors services 2. metrics by which success is measured and payments made
    • 12. The Implementation Agreement fixed fee time and materials not-to-exceed
    • 13. Pricing Models in Implementation Agreement
      • Pros and Cons to all models
      • Keys to negotiating:
      • Realistic balance of risk
      • Both vendor and customer protected
      • Realistic management mechanism
    • 14. Typical Problems with Vendor’s Standard Risk Sharing Proposals
      • “ At Risk” money linked only to delivery dates with no consideration for quality of Deliverables.
      • No incentive to stay within T&M estimates.
      • No consideration for the magnitude of a missed deadline, e.g., the same credit applied whether Vendor is late by a day, or a month.
    • 15. Key Features of Alternative Approach
      • is milestone based
      • provides for monthly T&M payments
      • gives Vendor incentives to stick to estimates
      • is not punitive/will not send Vendor to $0
    • 16. Key Terms Implementation Fee Estimate: Not a fixed amount Milestone Cost: The portion of the Implementation Fee Estimate allocable to each Milestone Event. Is proportionate to the Milestone Event. Calculated as: Estimated Hours of Effort to Achieve Milestone Event x T&M Rates Milestone Event: A naturally occurring project event that does not require separate administration or special oversight (e.g., Entry into UAT and Exit from UAT). No fewer than 4 or more than 12 Milestone Events.
    • 17. Example Scenario: Terms
        • Implementation Fee Estimate = $1 million
        • Milestone Events = 5
        • Milestone Cost = $200k per milestone (for ease of calculation assume the Implementation Fee Estimate is equally divided among Milestone Events).
    • 18. Example Scenario: Monthly Invoicing
        • Invoicing Activity
        • Each month Customer is invoiced for and makes the Ongoing T&M Payments
        • Ongoing T&M Payments measured against the Milestone Cost (i.e., the amount of effort x dollars that Vendor estimated to achieve the Milestone Event)
        • If aggregate Ongoing T&M Payments for a Milestone Event exceed the Milestone Cost for that Milestone Event . . . .
    • 19. Example Scenario: Rate Reduction
      • . . . . then the T&M rates from that point until the applicable
      • Milestone Event occurs, are reduced:
        • Ex. Milestone Event 1
        • Milestone Cost = $200k Milestone Date = April 30.
        • In January 10 resources work 100 hours each at $100 per hour. In February, Customer is invoiced $100,000 (10FTEs * 100Hrs * $100).
        • Same resources / level of effort in February such that Customer is invoiced for and paid, total Ongoing T&M Payments of $200,000 (i.e., the amount equal to Milestone Cost) even though that Milestone Event is not yet achieved.
        • Consequently . . .
    • 20. Example Scenario: Rate Reduction (continued)
        • . . . . the work performed by Vendor in March and April will be at reduced T&M rates as follows:
        • Dollar Overage Percent Fee Discount
          • 0 – 9% 0%
          • 10% - 19% 10%
          • 20% - 29% 20%
          • 30% - 39% 30%
          • 40% - 49% 40%
          • 50% - 59% 50%
          • 60% - 69% 60%
          • 70% - 79% 70%
          • 80% - 89% 80%
          • 90% > 90%
    • 21. Example Scenario: Rate Reduction (continued)
        • In March, 10 Vendor resources work 50 hours at $100 per hour. Without rate reduction, Customer would be invoiced $50,000. This would be a 25% Milestone Cost overage, so the actual invoice will be calculated using 20% discount from the table:
        • [((10 resources) x (50 hours)) x ($80)] =
        • Invoice for Ongoing T&M Payments of $40,000
        • Progressive discounting continues until Milestone Event 1 is achieved
        • Subject to timely Change Management – dates can be moved / Milestone Costs increased on mutual agreed terms in advance .
      • Once the Milestone Event is achieved . . .
    • 22. Example Scenario: Rate Reset
        • . . . the discount structure resets and Vendor goes back to full rates for the next Milestone Event
        • unless/until
        • Ongoing T&M Payments again exceed the Milestone Cost for Milestone Event 2 at which time the discount is again triggered,
        • except that . . .
    • 23. Example Scenario: Continued
      • . . . if prior to project completion, total Ongoing T&M Payments for all Milestone Events reach 100% of original Implementation Fee Estimate then:
      • Recovery of Success Payment / Holdback will be lost; and
      • 2. the rate reset for the next immediate Milestone Event will only be at 75% of Vendor’s original rates.
      • One additional safeguard: If Vendor refuses to complete project / reallocates key, identified resources:
        • will be deemed abandonment subject to liquidated damages
        • will relieve Customer of restrictions against using Vendor competitors
    • 24. Support / Hosting and Service Level Agreements
      • scope of support 2. metrics by which operation of software and quality of service are measured
    • 25. Support / Hosting and Service Level Agreements Avoid Hidden Charges storage fees administrative fees for telco backup / DR fees “premium” offering fees cancellation fees / conversion fees
    • 26. Questions? Feedback
    • 27. Is a registered trademark of Hatos/Hall Productions and Stone-Stanley Productions and all visual and audio works related to “Let’s Make A Deal” that are used in this presentation are owned by them. All other contents of this presentation are Copyright 2000 – 2009 Richard L. Green and may not be used or reproduced without his permission.

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