August 3, 2021
Understanding Total Cost Of Ownership

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This three-part blog series explores the various challenges organizations face when utilizing a managed service and how to effectively overcome them. In our last post, we explored the difficulties in defining managed service requirements and how to avoid overlooking the complexity, size and scope of your needs.

The final challenge we have identified is establishing an accurate return on investment (ROI) formula for the total cost of ownership (TCO) of a managed service. Are you getting value for money? Is it delivering the service you require more cost effectively than in house operating costs?

The decision makers in every business must evaluate the ROI of the money they are spending. However, many companies miss-value TCO as measuring ROI for a managed service is never a straightforward process and the value can be so much more than the pricing model in the contract.

What should be considered when calculating the TCO of a managed service?

It is common to see organisations engage managed service providers (MSPs) on the sole basis of cost. It is very easy to calculate salaries, office costs etc when reviewing your managed service but in reality, managed services provide many other benefits that should be taken into consideration when making decisions around engaging a managed service.

Here are some of the less tangible benefits that should be considered when reviewing the ROI of a managed service:

Knowledge

Managed service providers exist to deliver the function being requested of them, banks do not exist to run market data departments. As such the MSP should have excellent knowledge and expertise in delivering the service in the most efficient way as it is in their interest to do so.

Expertise

Within market data there are many different segments and specialties that exist. If you wanted to tap into this expertise on a 1:1 basis it can be prohibitively expensive. By utilising a managed service, you often get access to subject matter experts when you need them without having to pay them a full-time salary. Having access to that expertise can be very reassuring when you are managing such a wide range of requirements and ensures that you get the best advice and support when you need it most.

Scalability

One of the biggest benefits of working with MSPs is when it comes to changes in demand. If you have temporary or long term increase or decrease in demand it is much quicker and more cost effective for an MSP to address this as they will usually have the ability to move resources within their functions based on requirements, rather than having to go to market for short term changes. Recruiting and training staff to meet short term demand is never an efficient process and often costs much more than expected when comparing it with the cost of a temporary flex of resources from your MSP.

Industry Best Practice

MSPs understand and often set industry best practices. Their business model is to run as efficiently as possible, so understanding their industry/marketplace is a must. They will often hear about changes to products, vendors, services before you as they have the benefit of scale with many contacts across their client base. Also, if there is a repetitive process across their clients they are more likely to invest in automation as the benefit would be larger for them across all clients than that of an individual company. Moreover, using an established cost management process that has been created by an MSP through years of market research and learning can have large financial benefits in cost avoidance and cost control which cannot always be easily modelled when evaluating the value of a managed service.

Resourcing

Managing staff is resource intensive; dealing with staff turnover, training, holiday and sick leave is time-consuming and expensive. MSPs have to build this into their delivery model so they have the ability to flex resourcing or train new staff whilst continuing to deliver. This is often one of the biggest non-tangible benefits that people mention once they have been working with an MSP for a period of time as often managers do not realise the time they spend on managing staff vs delivering against targets until they are given the time back.

So, when looking at the perceived value of a managed service be sure to look beyond just the numbers on the contract when making a decision but also take into account the non-tangible cost benefits of an MSP as they are often far greater than you would realise.

Interested in finding out more? Get in touch with our experts to learn how we can help you build a secure and reliable managed service framework to reach your business goals!

cjccm@cjcit.com

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