Select third-party agreements with cost-efficient terms

Choosing the right pricing models and terms for third-party services can significantly reduce costs. It’s vital to align these agreements with your organization’s needs, ensuring that payment scales with the actual benefits received.

Best Practices

• Evaluate Vendor Pricing Models: Regularly assess various pricing models offered by vendors, such as pay-as-you-go or tiered pricing. This enables you to choose a structure that optimally fits your usage patterns and budget, reducing unnecessary expenses.
• Negotiate Flexible Terms: When entering agreements, prioritize flexibility that allows for scaling up or down based on actual service usage. Such terms ensure costs remain proportional to business growth and changing requirements.

Supporting Questions

• Are the pricing models being utilized currently aligned with your usage patterns?

Roles and Responsibilities

• Procurement Team: Responsible for evaluating and negotiating third-party service agreements to ensure cost-effective terms are set and maintained.
• Finance Department: Monitors expenses related to third-party services and ensures alignment with the overall organizational budget and cost optimization strategies.

Artifacts

• Vendor Assessment Checklist: A document that assists in evaluating potential vendors based on pricing models, terms, and value delivered to the organization.
• Cost Tracking Sheet: A tool used to compare and track costs associated with various third-party services against their performance and benefits.

Cloud Services

AWS

• AWS Pricing Calculator: Helps estimate the cost of resources based on chosen pricing models, aiding in the decision-making process for third-party service agreements.
• AWS Budgets: Allows you to set custom cost and usage budgets, ensuring that expenditure on third-party services remains within the agreed-upon terms.

Question: How do you use pricing models to reduce cost?
Pillar: Cost Optimization (Code: COST)