Electronic Cash News

Many times the successful outcome of an IT project is dependent on the original contract or charter document. They do not seem to teach that in IT school. Without a good contract, you get unexpected costs from vendors, you get scope creep that drive up costs, you build a software product that nobody needs, and disappointed business stakeholders.

Joshua Greenbaum, Enterprise anti-matter blog, has a good example of a hardware vendor contract going bad (see ROI Lost: IBM Puts the Screws on a Loyal Customer). Here the customer had a contract with IBM for a mainframe hardware and Peoplesoft software. To save on costs, the customer decided to migrate the Peoplesoft software to a Microsoft SQL server. This looked like a good cost saving project, but there was a clause in the original IBM contract that ruined the project. Basically, the IBM mainframe and Peoplesoft contract had bundled pricing that required that the customer host the Peoplesoft software on the IBM mainframe. When the customer moved Peoplesoft off of the mainframe, the mainframe pricing shot up threefold. Again, bad contracts and bad project charter documents can destroy an IT project. In this case you had an old bundled-pricing contract that put restrictions on the customer years after the contract was signed. Then you had a project that had not scoped all associated vendor costs that would be incurred by implementing the project.

I always say that half the challenge in succeeding in business is having a good contract in place with your customers and suppliers. There is a good podcast (Contract Management -the Next Level of Procurement) out that talks about the other half with suppliers: realizing the savings with a contract. It is easy and I think quite common for a procurement office to award a contract and then put out an internal announcement that they saved the company so many millions of dollars. In reality they have not saved the company any money yet. The real savings comes with the proper execution of the contract. That is where you need to track and have contract metrics to measure the actual savings as they occur. If you do not, you are sure to have revenue leakage.