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Pros and cons of managed services

What do you think of managed services?
Managed services may help provide a shared risk environment for IT with buyers and sellers. Under this model, the company purchases the software, infrastructure, customization, administration, guaranteed service levels and transition management, typically for a fixed monthly fee and/or price per-user, per-month. With this migration, the enterprise software is no longer purchased, but provided as an on-demand utility.

With the managed services agreement, the company can demand survivorship and transition guarantees to assure a smooth upgrade – at no cost to the company – should an upgrade be available or disruptive acquisition occur. Current money-back software guarantees help, but because only 10 to 20 percent of the total cost of ownership is the software itself, the company is still exposed to merger and upgrade risks. The move to managed services with transition management terms could help reduce or eliminate any risks and ensure that the company has the latest technology and innovations on-demand.

Suggested Guidelines
ERP projects typically:
* Take six to 18 months to implement.
* Deliver payback in the 12 to 24 month range from project start, because deployments take time, user adoption takes time and business change needs to occur around the technology platform.
* Typical risk adjusted returns range from 100 to 400 percent for most projects, making them some of the best projects in a company's portfolio.

Guidance for maximizing returns:
* Stay on course with current decisions until the dust settles: Don't consider radical changes or platform switches as a knee-jerk reaction.
* Demand quick payback from any project and be sure to do financial due diligence that takes transition risks and costs into account.
* Continue with upgrade plans, as long as the business case is still sound and risk of transition is factored.
* Continue plans to improve specific business processes, but select the lowest-TCO, highest-ROI solutions to ensure quick payback and reduce risks.
This was last published in November 2003

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