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What to Know about Mainframe Outsourcing Pricing Models

Jan 2, 2014 6:00:00 AM

by Charles Bystock

mainframe outsourcing pricing modelsWhat will it cost? That’s a question you ask about any new purchase or endeavor. But when it comes to mainframe outsourcing pricing models, the answer is as complex as your enterprise-wide IT operations.

What you need to know now is that things will change. It’s a fluid environment. So what we really have here is a snapshot in time. That’s why it’s so helpful to team up with a consultant that has hands-on business experience and the marketplace familiarity to explain all the current mainframe outsourcing pricing models. They understand there’s more to “pricing” than writing a check each month.

Successful mainframe outsourcing pricing models benefit both providers and those they serve. That’s why it’s important to find a provider whose motivations are aligned with yours. You can build your pricing structure around any of these concepts:

  • Consumption. This is the traditional, utility-style model. You pay as you go, only for what you use. It’s easy to segment and analyze internal usage and costs, but will you be reluctant to add needed services because costs will rise?

  • Incentives. We all love a bonus, but this model requires clear definition of what constitutes baseline service versus what is considered above-and-beyond. Incentivize only what you want your provider to focus on in the way of extras. You can also penalize them for failure to perform, and you don’t have to do both.

  • Gain-sharing. This is more amorphous. The goal is to encourage your provider to more creatively work with you to improve overall business outcomes that depend on high-level IT. That can be tough to measure, plus rewards/costs could fluctuate substantially from year to year.

  • Shared risk-reward. This essentially puts you in partnership with your provider to develop new solutions, products or services that could be brought to market. Just as the name implies, you would share the financial rewards, but you’re also both equally responsible whatever downside develops.

Caveat emptor.

You may have read industry reports that indicate a number of execs feel sandbagged by hidden costs. Typically, their frustration stems from side-effects they didn’t consider. But that’s what due diligence is for -- uncovering potential problems up front so you can either sidestep them or be appropriately prepared.

So you’ll want to be on the lookout. What are CEOs and CIOs grousing about most?

  • MIPS consumption that seems to have a life of its own. You expect your provider to be as concerned about efficiency as you are, with application development and maintenance efforts that prioritize cost-effectiveness. If your pricing model is based on CPU consumption, this is critical.

  • Sketchy knowledge transfer. You’re asking someone else to take on your highly complex mainframe ecosystem and ensure it blends smoothly with new technologies and applications. Do you have complete, accurate documentation about your legacy systems to help them do that?

If your retiring IT experts take that knowledge with them because it’s mostly in their heads, your provider will be at a distinct disadvantage and you’ll both pay the price in confusion and denigrated service. And if you falter, your customers will balk.

  • Poor quality work product. If you have to invest time and money checking up on your provider – performing your own testing and troubleshooting or assigning new quality assurance teams to monitor their work -- you’re simply trading one workload for another. One of your top priorities is freeing up your people so they can focus on mission-critical tasks.  

All these issues should be part of your provider negotiations, because mainframe outsourcing pricing models are worthless if they don’t assure top performance and positive working relationships.

What you really need to know is that these are still just models. The trend in IT outsourcing toward hybridization of delivery solutions applies to pricing, too. So pick and choose the elements that work for you, to create your own enterprise-distinct pricing structure that supports your budget and cashflow requirements.

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