How much does it cost to replace an IT vendor?

Cost

Cost

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You have had enough – or maybe your IT budget has.

The cost for your IT vendor has grown too great to remain sustainable. It could be due to direct expenses–the money required to maintain the service—or it might be from indirect costs--such as the money lost to downtime while a problem was being solved. While either of these is likely options, it’s just as likely that your company needs to make a break because your vendor can no longer accommodate your current IT needs.

However, that leaves you with a significant question. How much will it cost to replace your IT vendor?

Guidelines to vendor replacement costs

Although it would be nice to put out a definitive number on the costs of transition, it’s just not possible. Relationships with vendors vary, and more substantial ones may be deeply intertwined with your current processes. If this is the case, the costs between two given companies with the same vendor could vary wildly.

However, there are general rules that can help in estimating replacement costs. These fall into the following categories:

  1. Vendor search and contracting,
  2. Transition to the new vendor, and
  3. Management of the new vendor after transition.

Experience with and research into outsourcing indicates that these frequently overlooked costs can wipe out as much as half or more of expected savings. According to Gartner, about 7 in 10 companies opt not to change vendors because switching is thought to be too expensive, painful, or both. Roughly half the time, companies will, instead, renegotiate the terms of a contract with an existing vendor. In that case, having an idea of the likely expenses involved in switching vendors could be important.

Minimizing expenses

Of the three categories, transition costs to a new vendor are probably the hardest to pin down. Think about outsourcing internal IT to an external supplier. If internal IT has a wealth of expertise in important legacy or one-of-a-kind systems, the transition will not be complete until that information is transferred. That process can take as long as a year.

When switching from one IT vendor to another, the transition will be faster and less expensive, assuming there are no penalties for breaking a contract. Generally, the more competent and professional the two vendors involved are, the easier the transition is. Equally important, there will be less disruption during or after the transition, which is another form of switching expenses.

The cost of management after transition will also depend upon the competence of the new vendor. That’s because these costs can be minimized if the vendor fulfills its obligations with little guidance and supervision.

What this points to is that the way to minimize vendor replacement costs is to make sure that the search and contracting process is thorough, which will help reduce secondary expenses from transition and management. So, it’s important to exhaustively evaluate a potential new IT vendor to see if it possesses the necessary breadth of expertise, experience, services, and support to accommodate your company’s needs.


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