Research Publication Date: 10 December 2008 ID Number: G00163195 Cost Optimization: Three Steps to Saving Money on Maintenance and Support for Network Security Products Lawrence Orans, Greg Young Most enterprises can benefit from more-aggressively negotiating their contracts for the maintenance and support of their network security equipment. Here, we provide a threestep process to help security professionals structure these negotiations. Key Findings Contract pricing for maintenance and support is fairly standard, and the discount range is narrow. It's important to maintain an ongoing record of your level of commitment (in terms of equipment purchases) to each network security vendor. Your commitment level and loyalty are essential components of the negotiation process. Because maintenance and support contracts are a recurring expense, even a small (1% to 2%) savings will make the negotiation process worthwhile. Recommendations Use the Gartner structured methodology to annually fine-tune contract negotiations for maintenance and support services. Centralize negotiations for maintenance and support so that multiple buying centers can benefit from volume discounts. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.
ANALYSIS Network security professionals know they should never pay list price when purchasing firewalls, intrusion prevention systems and other security equipment; instead, they negotiate aggressively for the highest-possible discounts, no matter how small the deal. Too often, however, they aren't nearly as aggressive when negotiating maintenance and support contracts for this equipment. Although the rates are fairly standard for these contracts, there's some small room for negotiation (particularly in large deals), and savings will accumulate throughout the life of the contract. Here, we outline a three-step structured approach to help you negotiate a fair price for your maintenance and support contracts. Fees for firewall maintenance and support contracts (most vendors bundle the two services together) are, on average, 19% of the list price, with the best rates being about 15% and the highest rates about 35% (higher rates include premium support options, such as four-hour response time). Maintenance and support for network security equipment are discounted by small margins (usually only 1% to 2%), and discounts are often reserved for large contracts ($150,000 per year and higher). However, discounts also may apply to smaller contracts, and the three-step process outlined below will help you negotiate a fair deal with your vendors. Step 1: Calculate how much you're paying in annual maintenance fees to each installed vendor. This figure must be continually updated to reflect changes of equipment that has been added to or removed from the contract. Ensure that your internal records are consistent with your vendors' records. To gain maximum negotiating leverage, it's important to view maintenance charges collectively as one annual fee, as opposed to a series of multiple contracts with staggered start and end dates. If your enterprise has centralized purchasing and procurement, then check to see whether it's already tracking maintenance and support spending per vendor. Where the vendor also sells network infrastructure and/or nonsecurity products, include those numbers in your calculations. For example, if you purchase firewalls and LAN switches from Vendor X, then your calculation should include your total maintenance spending across both product categories. Step 2: Inventory each vendor's installed base within your organization and calculate how much money your organization has paid for this equipment. It's often easier to use the discounted purchase price for this calculation, but the calculation also may be based on list price. The important thing is to be consistent. If you initially base this calculation on discounted price, then you must use the discounted price to update the calculation each year. If you mix discounted price and list price, then your installed base value will be compromised. Step 3: Calculate the maintenance charges to installed base (MCIB) ratio for each installed vendor by dividing maintenance charges (Step 1) by installed base (Step 2). As your organization's commitment to a vendor (as measured by the installed base in Step 2) changes over time, the MCIB ratio should follow a predictable pattern. For example: Commitment strengthens: The MCIB ratio should reflect a slightly downward trend (see Figure 1). Commitment remains constant: The MCIB ratio should be relatively flat. Commitment weakens: The MCIB ratio may reflect a slightly upward trend. Publication Date: 10 December 2008/ID Number: G00163195 Page 2 of 5
Figure 1. MCIB Ratio Maintenance Charges Installed Base = MCIB MCIB Ratio Behavior of MCIB ratio as vendor's installed base grows in your organization X X + 1 X + 2 X + n Source: Gartner (December 2008) Year You also should annually review the level of support that you've contracted with each vendor, and track this alongside MCIB. As part of this review, determine whether a lower level of support is acceptable. Look at how often the features of that support level were invoked (for example, sameday would have been acceptable, but the contract specified four-hour response), and determine whether a changed support level will conflict with internal or customer service-level agreements. Gartner doesn't advise dropping support contracts as a money-saving strategy because security patches are an important and necessary component of these contracts. Several scenarios may lead to inconsistencies with the MCIB ratio. For example, changing the level of support from four-hour response to same-day (as per the cost-cutting move suggested in the above paragraph) will require an adjustment to the MCIB. Changing the term of a contract (for example, from one to three years) to gain a more-favorable discount also will require adjustments to the MCIB. Thus, the MCIB may not always be a straightforward calculation. As your service and support requirements change over time, you'll likely need to make one or more tweaks to the ratio to address these scenarios. The main benefit of maintaining the MCIB ratio is that it gives you a structured approach to negotiating maintenance contracts. Figure 2 shows the Gartner decision framework for assessing the impact of cost optimization projects. Network security professionals should use it to plan for MCIB initiatives in their organizations. For each of the six elements of the decision framework, we provide our expectations of the impact of a typical MCIB initiative (low, medium or high benefit). Publication Date: 10 December 2008/ID Number: G00163195 Page 3 of 5
Figure 2. Decision Framework for Security Equipment Maintenance Cost Optimization Low Benefits Medium High Potential Benefit: - How big is the cash savings if the action is implemented? Customer Impact: - What impact will this have on customers? Time Requirement: - Can you capture the savings in this fiscal year? 1% to 2% reduction in security hardware maintenance spending None no change in reliability 6 to 18 months as maintenance contracts are negotiated Degree of Organizational Risk: - Will your leaders ensure that the changes are made? Is your organization capable of adapting to the changes? Degree of Technical Risk: - Is there a risk that the change will undermine the capability of your systems to deliver? Investment Requirement: - Does the change require a large, upfront investment before savings can be captured? Is the organization willing to make an investment at all? Source: Gartner (December 2008) None no staff reductions or changes in organization and processes None maintenance levels unaffected Low better analysis and a change in the negotiation strategy Publication Date: 10 December 2008/ID Number: G00163195 Page 4 of 5
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