As IT executives, we are all too familiar with the constant cost pressure and the tactical measures required to manage IT operational budgets. The focus tends to be on lights-on operational expenses and areas like resources, procurement, travel and project investments become the targets for reductions. If this is the focus you miss a great opportunity to mine for real savings and improve IT performance.

These target reductions tend to be short-term focused and are intended to affect end-of-quarter cost objectives. An area that can have a significant impact on IT operational cost is your services contract portfolio. Although longer-term focused, conducting an assessment and evaluating the structure, terms and performance of your contract portfolio could uncover substantial cost reduction opportunities.

There is constant “churn” with suppliers, agreements and scope of services. The dynamic nature of managing the stream of external service demand can lead to inefficiencies that equate to increased IT costs.

The challenge in managing a dynamic, evolving supplier contract portfolio is compounded by trying to maintain consistent process discipline when there are several contributors participating in the sourcing process.

With this challenge comes an opportunity. The opportunity to analyze the contract portfolio and mine for cost reductions. These opportunities could come from several areas:

1. Consolidation – leverage price reductions by increasing volume to suppliers who provide the most value.

2. Re-bid – avoid the path of least resistance to renew contracts when they come to term. Reestablish requirements and go-to-market to improve service value.

3. Contract audits – review active contracts for need, terms, scope, performance and consumption to identify unnecessary spend.

4. Benchmarking – compare current pricing against market pricing to identify price adjustments opportunities.

5. Contract and service structure – there are several areas that could improve cost control when developing your next service contract: consumption-based billing, factoring in demand drivers, no penalty termination, shorter-term agreements, business objective alignment based on outcomes, service level agreements with service termination and service provider flexibility to name a few.

Consider taking two steps of action:

1. Conduct an assessment of the contract portfolio to identify “low hanging fruit” opportunities. Build a plan, drive to completion and harvest savings.

2. Commit to establishing or improving your vendor management function, building organizational capabilities and establishing a set of polices, standards and processes that will provide a process framework for managing the lifecycle of supplier contracts in a consistent manner.

Following these actions will not only increase IT performance, but deliver cost reductions. A well-established vendor management organizational (VMO) practice can be self-funding and provide significant value to the organization. Active contract portfolio management combined with establishing standard processes will support VMO funding by way of cost savings and cost avoidance.


Our team is a blend of high-quality talent from all levels who can tackle your most complex issues with a fresh approach. With a globally connected network of 4,000 employees, Wavestone is designed to help you get results. All our consultants thrive on complex challenges, enjoy blazing new trails, and are committed to your organization’s success.

6 Operational and Strategic Benefits of GenAI-Driven Tech Procurement

Nov 30, 2023

The procurement of technology services stands at a fascinating crossroads, with the introduction of generative AI marking a transformative shift in how organizations approach this critical function. Read our blog for 6 key operational and strategic capabilities enabled by GenAI-driven tech procurement.

Navigating Complex Procurement: 5 Challenges and Best Practices

Nov 23, 2023

Effective procurement drives efficiency, cost savings, and supply chain reliability, and comes with its fair share of complex challenges. Overcoming them requires a multifaceted approach integrating strategic thinking, innovative solutions, collaboration, and proactive risk management. Read our blog for a detailed examination of 5 major procurement challenges and top-line strategies for success.

Have a Question? Just Ask

Whether you're looking for practical advice or just plain curious, our experienced principals are here to help. Check back weekly as we publish the most interesting questions and answers right here.

Ask Wavestone