[This is part of a series of posts describing how IT contracting compares and contrasts with the structure described in the PMBOK.]
The IT world continues moving quickly to cloud, but somebody somewhere must own the tangible infrastructure elements. This may be your organization, your client, or part of your project.
Historically, you buy, lease, or license IT products, primarily with some kind of unit-based pricing.
New and used hardware is offered for sale, and can usually be leased directly from the provider or indirectly via various leasing channels. As with most technical assets, the purchase price (and thus the lease rate) for IT hardware is generally based upon capacity, performance, features, functions, number of units, and asset age. Manufacturers offer a wide range of purchase price incentives, including volume discounts.
Bad things happen to good IT hardware, so most hardware maintenance is part of the ownership costs for infrastructure of any business value. This is called hardware “break/fix” support. New products usually carry a one-year or multi-year warranty. Used products still in use after the warranty has expired are typically covered by hardware maintenance agreements purchased from the manufacturer or other support organizations.
There are many books written and careers built upon the analysis of purchase versus lease decision for infrastructure owners. IT project managers working in infrastructure organizations need to be aware of leases and their status. In large IT-owing organizations, lease-ending periods can trigger hardware refresh projects that can impair or accelerate your IT transformation project.
Software is occasionally offered for sale, but is generally offered for license by software providers. Software providers use a wide range of licensing plans, with the same software frequently being available under more than one licensing scheme. Traditional software licensing charges are based upon the number of users (called “seats,”) number of transactions, or amount of underlying hardware “horsepower” (which can be measured several ways.) Software licenses are similar to leases in that they are generally valid for a specific time duration and are generally charged on a certain time unit basis (typically monthly.) Providers offer a wide range of licensing incentives, including volume discounts, and especially tie-ins with the licensing of other software packages.
Bad things happen to good software, so software “break/fix” support is considered part of infrastructure ownership in the same way as hardware support. Software “break/fix” support includes the ability to receive certain kinds of software updates (“fixes,”) and usually commits the software provider to developing new software updates for bugs that the licensee discovers. This kind of software support is generally considered different than software usage support. The licensee is presumed to have sufficient staff expertise to be able to install, configure, operate, and maintain the software. Major software providers offer software usage support, and may “bundle” software defect support with software usage support as one service offering. In any case, usage support is clearly a service distinct from the tangible product. I will describe contracting for that kind of service in a separate post.
Many IT hardware products contain a kind of embedded software that directly controls how the hardware functions. This is referred to as “firmware” because its function occupies a logical space somewhere between tangible hardware and traditional software. Legally, firmware is licensed. However, the license is usually connected with the hardware warranty agreement and the hardware maintenance contract.
Technically, hardware and software maintenance can be considered services, but IT organizations frequently consider these to be part of the “costs of ownership.” Contracting for maintenance is usually closely aligned with the procurement of the product itself.
[I welcome your comments and feedback based on your experience managing or procuring IT services projects. Feel free to contact me directly.]
(Image courtesy of stevepb at Pixabay.)