Software

Situation

• Far East based company

• Systems specialist had decided that there were two system products which could meet business needs 

• Initial negotiations undertaken by the systems specialists

• Reduction of 25% negotiated on purchase cost; maintenance costs accepted on industry norms

• Little consideration given as to how to manage costs of future developments (which could be substantial)

Analysis

• Little scope for reducing the purchase cost of the software through playing suppliers off against each other

• Strong technical preference for one of the suppliers products

• Little knowledge of what it had cost the suppliers to develop the software or what it would cost to maintain it

• Some internal knowledge on how software suppliers estimated new software development costs

Solution

• Cost analysis on software development costs, software maintenance costs and analyst programmer rates

• Principled negotiation; used to link the price for the software and its maintenance to development costs and actual sales. Also used to secure common understanding on parameters important in assessing coding volumes and times on future tailored developments

Results

• Reduction on software costs increased to £560k (40%) with the potential for greater savings when sales exceeded the agreed threshold

• Improved control on costs of future software developments

• Closer working relationship and improved response from the selected supplier