7 best practices to avoid an increase in Support and Development costs

Support and development are often taken for granted – we need it quick, because there is a demand which must be met, etc. This needs to be constructed to avoid common mistakes and reduced to the necessary components to profit from a smaller price tag.

There are some cost components, often hidden or unquestioned, which can cause higher cost. The following best practices shall help to reduce them.

1. Bring support cost increases under control

Rising prices and costs are omnipresent, and so is Inflation (Inflation in May 2022 in the US was at 8,6% - highest level since 1981) and the usage of different currencies. All these variables add another layer of risk. In the meantime your company's needs and demands for implementing and using new technologies are also emergent.

This brings up the question “How to find the right resources to meet this demand while keeping budgets from exploding?”. About 64% of questioned IT executives have the same concern and see a lack of well-qualified staff as the main barrier to this in 2021 (compared to 4% in 2020).

The contract landscape is fragmented, often localized, or maintained on regional level. Doing a calculation for the next budgeting cycle on global levels is kind of a nightmare. So, is simply getting an overview a nearly impossible activity?

Thinking about the long run, this is a hint to strive for global service providers with a vendor management office that operates under clear conditions and scope. Usage of a limited number of frame contracts certainly will reduce complexity.

For the short run, at least an evaluation of contracts with large spendings on certain categories will provide an overview:

• Define a threshold of annual spending – if this threshold is exceeded, each contract holder must submit information why it happened
• Design key questions for the evaluation, etc.
  
  
  • COLA agreement within the contract
  • currency used, exchange rates definitions
  • flexibility of scaling provided or not
  • run-time of contract
    
    
• Align a possible standard with key stakeholders and try to re-negotiate with the providers

For (re-)negotiations: improve your position by talking about numbers

What is definitely beneficial before renegotiating is that you are aware of the following:

• Which technology stacks are handled?
• What volumes are covered by these technology stacks?
• When does the contract end?

If you have for example two contracts, one with only some months to go and another one with a longer run time and the service provider is doing a good job – try to leverage from it. Bring the additional volume on the table and use your bargaining power.

2. Avoid unclear job descriptions

Unclarity leaves room for ambiguity and leeway. Creating clearly defined job descriptions allows you to lower costs.

• What are the responsibilities of a junior, standard, or senior function?
• What skill sets do they require?
• Which tasks are assigned to them?
• And what should the mix of these levels look like?

Experience is often seen as key. But each task requires a specific skill set and level of experience. Not all of them require more than 10 years practices in e.g., project management. Define skill sets and ensure a good mix of them. This lowers costs and ensures a certain level of quality at the same time.

3. Stop surcharges for 24x7 support by promoting a demand driven support model

The usage of a 24x7 support model is certainly convenient, but it usually comes with high costs. The surcharges, often hidden, are quite high compared to other support ranges, and there is a specific reason for it. In general, it is quite complicated to provide 24x7 coverage, and at the same time it is often not necessary at all.

It is built to ensure a fast turn-over time, short pick-up times, and a user-friendly end-to-end solution time, as it operates in a three-shift model. However, to operate it under stable conditions, the following components must be considered and coordinated. And unfortunately, these are the main price drivers.

• The level of experience and skills must be fairly balanced across shifts
• Skill sets must be provided at a scale that enables stable delivery
• Handover of open tickets across shifts is time consuming
• Night shifts often require surcharges
• It is often calculated to maintain delivery in peak times during the day shift of most users (which is not 24x7)

Moving from a convenient-driven to a demand-driven support model will have the desired effect of reducing overall costs. This requires an assessment of needs, risks and costs. Balancing these factors depending on your individual requirements and based on a clearly defined decision matrix leads to cost reductions while maintaining the operation of core functions.

4. Use On-Call support options

On-call service is a good option to reduce the costs for true 24x7 support. Instead of having a team working 24x7 in front of a workstation to support you day and night, opt for a reduction in the support time range  (e.g., 16x5).

In order to better estimate the required time coverage, it is highly recommended to evaluate the distribution of tickets on an average working day. This makes it possible to immediately see whether 24x7 support has a fairly balanced workload throughout the day or whether there are spikes and peaks.

Uneven distribution of requests opens up new opportunities

In case the distribution is not even balanced, the support is provided for non-critical applications, etc. a priority-based system can be invented.

• Tickets with high priority (e.g., P1 and P2) will be worked upon immediately
• Tickets with a medium to low priority (e.g., P3 to P5) will be worked upon in the next shift

Through this system, the typical three-shift system can be reduced to at least two shifts. Further reductions are still possible if the days are also limited, e.g. elimination of Saturday and Sunday. Then, the high-priority tickets are processed via the on-call service.

The on-call support agent only gets active if a ticket with a defined priority is issued. Otherwise, the agent will not start working. There are several ways to handle this:

• Usage of economies of scale of the supplier
  The agent supports other customers with the same technology stack and on-call option.
• Usage of economies of scale within the dedicated support
  The agents work across service categories for the same customer (attention: different technology stacks may be an obstacle).
• The support agent is on stand-by mode only
  If a ticket arises, the agent will work on it. This can require sometimes a surcharge or a higher ticket price for P1 and P2, but the overarching effort is reduced as at least one shift is avoided.

5. Implement a smart Onshore - Nearshore - Offshore - Mix

A key factor of cost composition for support is based on the delivery location. Some common termini within IT service provisioning are Onshore, Offshore, and Nearshore. It defines the location of a support agent or team.

Onshore

• Onshore resources are typically located in the same country as your company or subsidiary or at least in adjacent neighbouring countries
• These resources are typically used for projects that require a lot of face-to-face interaction
• Other reasons are:
  • advantage can be drawn due to speaking the same main language
  • time allocation is not a problem and can be hold more flexible
  • travel times play, in most cases, only a minor role
• This is usually associated with high labour costs, as the onshore plants are mostly located in 1st world industrialized countries

Nearshore

• Nearshore is not as obvious to classify as onshore or offshore
• Typically, Nearshore resources are defined by at least one of the following two points
  • Nearshore resources are located in the same time zone or in a time zone with very little deviation (1-2 hours)
  • Nearshore resources speak your native language at a high level
• It offers cheaper labour costs as opposed to classical onshore locations in North America and Western Europe and provides more flexibility for staffing

Offshore

• Support is placed on another continent, often with huge differences between time zones (e.g. India vs. US)
• Mostly placed in countries which offer large-scale support on common technology stacks (e.g. India)
• The main reason for offshore is usually the advantage of lower than average labour costs and high availability of resources

The location of the support influences the balance sheet – it can reduce or increase costs. A good mix is in general beneficial. However, a demand driven purchasing with transparent categories offers the greatest level of benefits.

This requires of course a certain maturity level of the vendor management office and a purchase process which supports it.

Evaluate your needs and define a smart mixture of locations. Setup an offshore delivery wherever possible. Wherever necessary, you should deploy a team with overlapping working hours and, overall of course, in sufficient volume.

6. Use a fully managed service approach

Time and Materials (or Staff Augmentation) is certainly common. This simple approach is highly used and familiar to many persons within purchasing, vendor management, and IT operations. The reason for using the same TM approach repeatedly is very simple:

“I know it – I purchase it” or “never touch a running system”

Staff augmentation always comes with limitations when compared with a managed service approach.
Managed services work on the basis of service level agreements and KPIs, and are generally not assigned to specific individuals. You also have the opportunity to hand over a lot of responsibility to the vendor. You no longer buy resources and manage them to achieve a specific outcome. Now you are just the customer buying a service or finished product.

 As you see in the table there are several topics that contribute to the 2 main reasons, why you should prefer a managed service approach:

1. 1. You reduce your own effort and responsibility
   2. You reduce the overall costs