By: Dinu Davis -- Senior Research Analyst
31 March, 2014
Currently, the most prevailing traditional pricing models in ADM market are time material and fixed pricing model. These pricing models are not suiting current circumstances due to high flexibility requirements and unpredictable nature of client requests. Managed service model which is the combination of fixed pricing model and outcome based pricing model is the latest trend in the ADM market as it can provide cost savings to the buyer, meanwhile sharing the project responsibility. Buyers are more concerned about the outcome of the applications as every organization is becoming result oriented business units. Furthermore, buyers are required to pay according to the contract SLAs. In the managed service model, client migrates their applications to the supplier server which offers cost savings with respect to management overheads and hardware procurement and maintenance. This white paper will also include concerns of managed service model such as data security risks, license control issues etc. Problem Statement: ?Application producers feel they?re delivering more value than they?re getting paid for, enterprises say they?re receiving less value than they?re paying for.? Impact on procurement: Chief procurement officers (CPO) are finding it hard time to convince stakeholders while procuring software or IT services due to the lack of assurance offered by the traditional pricing models. According to traditional pricing models, buyers have to pay more if the supplier is inefficient and intellectually lazy. Hence, organizations demand a better metrics to evaluate the value of an application and its maintenance which enables them to pay fair to the value derived from it.
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