CFOs everywhere are feeling the effects of economic headwinds, especially when it comes to costly, multiyear contracts. Trying to cut costs can be difficult, but there are simple approaches that organizations can take to contribute meaningful savings or restructure payments in software and cloud agreements.
Gartner reveals 3 ways by which CFOs can plan to save costs when the organization experiences a disruption.
3 ways by which CFOs can reduce costs and improve cash flow
1. Compel vendors to restructure contracts
You should start negotiations by telling all of your major vendors that you are taking action to address financial constraints because of the economic climate. As you notify vendors, figure out what changes would be most helpful. Some possibilities are:
- Transitioning to payments being made in installments or paying on a quarterly or six-monthly basis instead of annually
- Changing your standard payment terms
- Applying price ceilings or price caps
- Making temporary contract extensions
- Extending periods or additional services for contracts involving cloud infrastructure and platform services
When you are negotiating with vendors, look at their financial information and public statements. If they have made statements about the crisis, be ready to quote them. This will help convince the vendor to negotiate.
2. Reduce, suspend or terminate shelfware and support. Postpone audits.
To reduce IT costs in the long term, try to reduce upcoming payments. It will be very hard to get refunds or credits for payments that have already been made.
How to reduce cloud-related costs?
- To reduce their cloud costs, you can consider reviewing Software-as-a-Service (SaaS) contracts for possible downward flexibility.
- You can change to flexible pricing metrics and also ask for free or discounted cloud services during times when usage is high.
- Use cloud FinOps to get rid of infrastructure and platform services that are costing them too much money.
- To save money on cloud costs you can migrate to a version of the product that has fewer features and is better aligned with their usage.
How to reduce software-related costs?
- To reduce their software costs, you can discontinue paying for support and maintenance on software that is no longer being used.
- You may switch to using a different company for support, lower the level of support they’re paying for, or ask vendors to delay any audits.
3. Increase negotiation leverage
It is important for sourcing, procurement, and vendor management (SPVM) leaders to be realistic when negotiating with vendors. Vendors will not agree to demands unless they see how it benefits them. Leaders should be prepared to explain why it would be beneficial for the vendor to agree to the demands.
Negotiation leverage techniques are important to ensure maximum benefit and value when engaging a vendor. Avoid the use of antagonistic tactics during the negotiation process. It is also helpful to look beyond initial revenue by exploring the vendor’s interests, as this may provide an opportunity for multiple mutually beneficial options. Finally, be sure to evaluate all their competitors and alternatives you have on hand for comparison before conducting an assessment of competing vendors and arriving at the best solution for your business needs.
Executive leaders must reduce costs and improve cash flow during a time of crisis. To do this, SPVM leaders must consider restructuring software and cloud contracts. The above three techniques can be used to successfully negotiate these changes.
Source: Gartner
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