Have you ever wondered how IT vendors get away with hourly or timed billing for maintaining systems they were supposed to prevent from having issues in the first place?
Well, the short answer is simply because they could. Because they held a grip on your technology and everyone else in the profession charged the same way.
But not for long...times are definitely a-changing.
The good news is that the introduction of new all-inclusive business models is driving the market towards a fixed fee culture — though the majority of IT providers still use hourly billing under a "break/fix" business model.
But how exactly does the fixed-fee model work? How can one expect to maintain secure, speedy and scalable systems in the face of relentlessly evolving technology, with a predictable monthly bill?
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The issue of hourly and timed billing (or how to get rid of the concept) has been a major driver for these new business models emerging with IT innovators creating fixed fee platforms and services to deliver greater certainty about cost.
Frankly, it's silly to think that we've evolved to an "on-demand" economy, and yet still put up with hourly billing from so many types of service providers. It clearly reduces their incentive to be efficient, since the less efficient they are, they more they can bill you. If they maintain your systems well enough to prevent issues from occurring, where will they make their money?
And this culture of hourly billing creates a complete imbalance in the risk being shared between the buyers and suppliers of IT services.
In the commercial world, businesses must have an approach to quoting and charging for goods and services. Most businesses make a calculation of cost and add the necessary margin to arrive at a price for the job, such as pricing for copier maintenance contracts. This commercial analysis for pricing has appeared beyond many professional services firms, often hiding behind the excuse that certain pieces of work are just ‘too complicated’ to offer a fixed fee quote.
Clearly there are some open ended projects related to technology that might be difficult to price at the beginning, but it’s unusual that a firm will be dealing with a completely new area of IT. Most pieces of work are relatively standard and even the more unpredictable projects have a pattern which could be used to generate an estimated or ‘typical’ price.
Standards for All-Inclusive Service Contracts
In order for the all-inclusive IT outsourcing model to be sustainable, MSPs must set certain standards by which both they and their clients abide.
For instance, an MSP would be putting itself at risk by agreeing to give all-inclusive support to a business that was still dependent on an antiquated operating system like Windows XP, which reached end-of-life in April 2014.
Why? Because the manufacturer, Microsoft, no longer offers support, updates, or patches for XP—leaving it extremely vulnerable to malware, viruses, and cyber crime.
By entering into a managed services partnership, the MSP is assuming the risk and liability associated with their clients' IT infrastructure. If a client has a major disaster and/or data loss, the MSP could potentially be held liable. (Side note: one of the first priorities for any good MSP should include ensuring there are Data Loss Prevention measures in place.)
On the other hand, 40% of businesses who have a major system failure go out of business within the same year. Neither the MSP, nor the client can afford such risks, so it is in both of their best interests to conform to the set standards to mitigate the risk.
How do you get there?
Step 1: Comprehensive Assessment
At the beginning of a business partnership between a client and an IT services provider, both parties will need to get on the same page. The only fair, viable starting point is an assessment of the client's IT systems and business processes, which should include input from the people who use the systems day in and day out.
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Step 2: Review Findings, Recommendations & Next Steps
Once the assessment is complete, the provider and client should meet to carefully review all of the findings about the systems' current state. This meeting should include any existing vulnerabilities or potential future issues the assessment uncovered, as well as what steps (if any) must be taken to bring the client's systems up to spec with the provider's defined set of standards.
These steps may be as simple as defining new procedures for reporting issues and submitting tickets to the help desk, or as complicated as Operating System upgrades, depending on the current state of the environment. These may be charged separately from the flat-fee as "projects," but the provider should be able to price out most projects fairly and transparently, based on the assessment findings.
And One Last Thing...
When I talk about "standards," I'm not saying that IT service contracts cannot be customized—they can and should be, to a degree.
However, a service provider who claims they can assume the risk associated with becoming your business partner without thoroughly assessing and understanding your systems is either imprudent or insincere. Like most things in life, if it seems to good to be true, it likely is.
Once the client's systems are aligned with the provider's standards, the provider can fully assume the mutual risk of maintaining the client's systems. Meanwhile, the client is left to enjoy all-inclusive service and fair, predictable billing — without unplanned fees.