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ProBenchmark was instr- umental in helping us to optimize our infrastructure and improve integration to better support the NASA mission.
Jeff Seaton, Deputy CIO
NASA -
We did an accelerated multi- dimensional benchmark with ProBenchmark. It was a fast and very productive exercise to help me drive results.
Andrew Peel, CIO
ACE Group -
We started with an idea and hired ProBenchmark to help assess the opportunity.
Using their consulting skills and market understanding, ProBenchmark identified a significantly greater opportunity - then helped us exceed the savings in half the time. How could we not be pleased?
Linda Kinder, CIO
Kellwood Company -
Our company used the benchmarking data to set the bar for what we wanted to achieve. It gave clarity on targets, tightened negotiations and was fundamental to the overall speed and results.
With ProBenchmark's help, we achieved over 20% cost improvement.
CIO
Midwest Manufacturer
ProBenchmark In the News
Benchmarking Of Outsourcing Transactions Has Many Hidden Benefits
(Sourcing Interest Group - Dec, 2008)
By Ben Trowbridge
Benchmarking outsourcing transactions is a time-tested approach to ensure that outsourcing agreements remain competitive over time. Benchmarking ensures that vendors deliver market-aligned services at competitive prices.
But benchmarking offers much more.
Our benchmarking teams at ProBenchmark have conducted thousands of benchmarks over the last decade. We see a recurring pattern of benefits that provide greater returns than our clients expected.
These benefits flow not from investigations of comparable market price, but from examining overlooked financial elements.
In one case, the benchmark uncovered an inadvertent over-charging of CPU hours on an IBM mainframe, resulting in an immediate $19 million price credit. In another instance, poor pricing structure was causing unnecessary churn on both sides of the relationship. In each case, both parties worked together to solve the problem and strengthen their relationship.
Let's look at two problem areas often revealed by benchmarking: complex invoices and strange pricing structures.
Complex Invoices
One area ripe for improvement is the invoice. As part of benchmarking, invoices are often examined to capture the full scope of services and price. The benchmarker is usually the first objective party to actually review invoices and compare them to the actual services delivered.
Errors are often uncovered with a simple question: What is this? Errors can be significant - exceeding 20 percent in extreme cases.
ProBenchmark estimates that more than 80 percent of all transactions have errors on their invoices. Most errors we uncover are in favor of the vendor. Here's why:
- Outsourcing transactions are complex and invoices are long and complicated
- Often, the invoice preparer has only a complex contract for guidance on which items are chargeable
- Vendors don't uncover all invoice errors during preparation
- Vendors expect clients to validate invoices before payment
- Clients lack resources or experience to validate invoices; personnel reviewing invoices are often new to the deal.
- Errors usually accrue from a misinterpreting what constitutes a billable item, or from miscounting resource units.
For example, a large retailer has over 5000 MIPS of mainframe support. The mainframe was charged based on CPU application hours, and included a complex normalization of actual CPU seconds to 9021-340 CPU hours.
More than 14 separate mainframe machines were running at multiple locations. The calculation was mathematically incorrect, sprinkled with non-billable usage categories and calculated based upon a six-year old spreadsheet.
Other invoice errors include miscounting servers and processors and continued billing of out-of-date statements of work.
Over time, addenda and statements of work compound complexity with additional line items and calculations. Monthly invoices often have 30 pages of detail.
A good benchmark confirms the bottom-line price, identifies invoicing errors and finds opportunities to improve invoicing.
Strange Pricing Structures
A good benchmark uncovers billing schemes that are no longer effective, or worse, detrimental to the relationship.
A common example is the "Prego pricing structure." Like the pasta sauce, "it's in there." In an effort to make pricing simpler, many items are burdened into one simple usage rate.
Over time, this becomes a crutch by removing required visibility of items such as software spend or disaster recovery. Business units lose regular cost/benefit analyses of their spending.
In one case, the per-MIP rates for mainframe services included multiple software titles that most units no longer used. The question, "Why does the rate include $4.28 million in software used by one business unit?" led to a complete reworking of the price structure.
Solving common problems ensures that the price is reasonable and the invoice is accurate and understandable.
Revealing hidden benefits that clients were not expecting makes a strong case for benchmarking.
