Hot on Cash forecasting

3 reasons why you are paying too much for your cash forecasting software

January 29th, 2016

Cloud technology has significantly decreased software prices. This is true also for cash forecasting solutions. The price advantage of cloud software is based on scalability; i.e. efficient distribution and standardized solution and terms and conditions. If you try to acquire a cloud-based solution the same way you bought software licenses or you required customized services, you can guarantee you end up paying too much for the solution. Next, I will list three typical mistakes that lead you into paying too much for your cash forecasting software.

1. You are creating an RFI/RFP/RFQ merry-go-around

The RFI/RFP/RFQ process is a traditional but old-fashioned (at least as far as cash forecasting is concerned) way of procuring software. In this process, potential vendors are first sent an RFI (request for information), in which the buyer expresses its desire to procure a solution and asks the vendor to deliver some information about its offering.

In the RFP (request for proposal) stage, the buyer sends a list (which is usually very extensive) of requirements and asks the vendor to describe how the solution fulfills the criteria. This stage also encompasses detailed demonstrations of the solution.

Finally, in the RFQ (request for quote) stage the qualified vendors are asked for a price quote which the buyer will naturally negotiate down.

Participation in the process takes a lot of time and resources from the vendor. This is reflected in the price – and I do not mean a lower price even though the customer negotiating with several vendors may think.

The RFI/RFP/RFQ wastes not only the vendors’ time. It is also very time-consuming for the buyer.

The pricing of cloud software is based on scalability which is why cloud solutions often are very affordable. In order for a cloud vendor to be able to participate in the RFI/RFP/RFQ process and still make a profit, they’d have to raise their prices considerably. This is why they usually do not take part in these processes.

With a cloud solution, all required information, such as features, references, and even price, are publicly available on the web. You can also see a demo and usually take a free trial of the solution online.

The RFI/RFP/RFQ wastes not only the vendors’ time. It is also very time-consuming for the buyer. By using this time to gather the required information independently, you are almost guaranteed to get the right solution for you at a significantly lower cost (and faster).

2. You are letting a consultant play you

A specialized cash forecasting consultant can bring valuable experience and expertise into your procurement process. But problems may arise if you give the consultant a free reign to find you the right cash forecasting solution.

The consultant is likely to suggest the above-mentioned RFI/RFP/RFQ route. This increases your costs even further as you are paying the consultant handsomely by the hour for listing potential solutions, creating requirement specifications, reading the vendors’ responses, attending demos, and making you a recommendation.

By searching the web and talking to other companies, you can typically select the right solution without using a consultant. And if you select a cloud solution, you are likely to be able to handle even the deployment without the help of an external consultant.

If you want to use a consultant in a cash forecasting initiative, use the consultant in developing your cash forecasting process and integrating your systems with the cash forecasting solution.

3. You require exceptions to the SLA (service level agreement)

Quite often the IT department wants to get involved in one way or another. If they cannot require discounts (which they will try) they may request exceptions to the service levels defined by the vendor.

Typical requests include faster response times, changes to customer service hours, requests to use the customer’s own helpdesk software, or additional reporting.

Asking for exceptions to the SLA is like asking a bus driver to take you to your front door instead of the bus stop. You can get a ride to your door, but then you need to choose a more expensive taxi ride. Similarly, the pricing of a cloud solution is based on standardized SLA that the vendor has defined.

Asking for exceptions to the SLA is like asking a bus driver to take you to your front door instead of the bus stop.

A vendor might agree to the changes but they will charge more for the service in order to cover the extra work caused by the exceptions.

And a cloud (or SaaS) vendor is unlikely to agree to extensive SLA changes as their business is based on efficient processes and delivery. All exceptions make this harder and, furthermore, treat customers unequally.

Consider very carefully how much added value any SLA changes really create. If the service levels are not tailored, you keep your costs much lower.

The motivation behind the behavior is a sincere purpose to decrease the risk of procuring software. But everyone who has dealt with IT houses knows that one cannot cover all the risks.

By selecting a cloud application with standardized terms, you will save significantly in your procurement. And if the solution has a satisfied user base and short termination period, how badly wrong can you go?