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Why it pays to start budgeting for your 2022 software & cloud renewals early

 

Now is the time of year that many managers and business leaders are staring at spreadsheets even more intently than usual, as they find themselves deep in the process of planning their 2022 budgets, whether their financial year starts in January or in April 2022.

Expenditure on software and cloud services is an increasingly important line item in these forecasts, and one which organizations need to pay extremely close attention to. Reliance on an ever-widening portfolio of applications – many of them cloud-based, with contracts that include incremental price rises – means the cost of these services is not only large but growing, and often unexpectedly.

To achieve an accurate budget forecast for 2022, and to remove the risk of future overspend, now is the time to put this expenditure under the microscope, particularly if your organization has a major software or cloud renewal coming up in the next fiscal year.

Yet, when it comes to setting 2022 budgets, many organizations will still be basing their forecasts on simple assumptions about their future cloud and software expenditure. One assumption could be that costs will remain stable, as the company is confident of its ability to negotiate the same favorable terms at their next renewal. Another assumption could be that costs will be slightly inflated, in line with a planned growth in usage or assumed price increase. Some organizations may also be building in assumptions for expenditure reduction, by removing maintenance costs on technical debt.

There are countless other factors that organizations may consider as they set their budgets, but many of these are simple assumptions entered into a spreadsheet. The hard bit is making them real.
 

Two ways to improve your software & cloud budget forecasting now

At Livingstone Group, we advise organizations to consider two main factors to improve the accuracy of their budgets, and ultimately the outcome.

1:         Are you using what you think you are using?

Take time to understand what licensing and cloud services have been deployed and are being used across your organization, and see how this corresponds to your current contract terms. Has usage been as expected against what was bought and negotiated last time round? What do you really need in the future?  Getting to that accurate requirement is where costs savings can be made or where extra investment should be prioritized. This also allows you to create a Bill of Materials (BoM), a comprehensive list of all the services and software you need in the coming years, which will become your blueprint for a much more accurate forecast.

Coming up with an accurate, optimized BoM requires buy-in and stakeholder engagement from across an organization, and it can take months to collate. For more information on how to create a fully optimized BoM, download our Best Practice IT Procurement guide.
 

2:         If you have renewals coming up in 2022, now is the time to plan your commercial strategy

It’s not just about an accurate, optimized BoM, there are other key elements to consider here. As well as controlling your technology position, you will be in a far stronger position if you also understand how the vendor will commercially approach the negotiation. This includes how its sales team is incentivized and operates and how the contract terms will need to be structured to suit your organization. For more information on this, take a look at our eGuide, How to strike the optimal deal for your organization.

 

 

Seek independent, strategic support for software renewals

Compiling a BoM and then securing the best terms at a renewal requires specialist insight, from independent experts with deep knowledge of how each vendor operates and experience in optimizing vast IT estates. If you are budgeting for 2022, it is vital to factor in the cost of bringing in this type of external support and don’t leave it too late!

Far from being an extra cost to add to next year’s budget, investment here is proven to deliver a sizeable return. Livingstone Group clients typically see 38% ROI from our services; savings achieved both during the optimization and the negotiation processes.

For more information, email us on info@livingstone-group.com or complete this form and one of our contract experts will be in touch.

 

ABOUT THE AUTHOR

Chris Gough, Chief Strategy Officer

Chris has worked in the IT Industry for over 20 years, starting as a consultant he then took on more senior practice management roles, focusing on networking, security, data centre and unified communications and in recent years specialising in data centre optimisation and particularly in software licensing. Having worked with large enterprise organisations, Chris understands the challenges faced in data centre licensing and the lack of expertise in the marketplace.

Having founded the Derive Logic business until its acquisition by the Carlyle Group in April 2019, Chris is now on the senior executive board for the world’s largest independent IT Transformation Assurance and Software/Cloud Risk Management business, Livingstone Group.

 

 

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