Over the years many organisations have moved from purchasing their IT and office automation equipment and classifying it as a capital expenditure item to a situation where these systems are now often procured on a rental basis.
While this assists organisations in keeping up with rapid technology changes and moves the assets off the balance sheet, the tasks of managing these contracts is often neglected, resulting in a potential significant cost leakage situation.
"Managing upgrades, roll-overs and equipment returns is often an impossible task," commented Tony Maddison, a Director at Realyst.
"A typical example is the procurement of a server on a rental agreement. The contract is signed for three years but after a year the server is upgraded with additional memory or disk. This upgrade is also rented but on a different agreement. There are now two agreements for the same physical asset one of which terminates a year before the other.
"After three years the original equipment is returned, as per the conditions of the contract. However, no one thought to check what other contracts were in place for this server. As a result, the upgrades were returned with the server but the contract remains in force and payments are made against assets that are no longer in use.
"Subsequently, the contract for the upgrades expires and the assets need to be returned to the rental company," added Maddison. "Needless to say, nobody can find them and in line with the terms of the contract, penalties are triggered and, at best, a settlement fee is enforced.
"Unfortunately, the picture gets worse as the maintenance agreement for that server was also not cancelled when it was returned, thus generating more cost leakage.
"Another very common example occurs when, for instance, a number of laptops are rented for a three-year period. One is stolen, a claim is made against insurance, which is subsequently settled, and a replacement asset is purchased. But what happens to the contract? Is the asset removed from the contract, do you continue paying for assets you don`t have, can you return the asset at the end of the period?"
"The answer to the problem is quite simple," continued Maddison. "Link the assets to contracts, make sure that any upgrades co-terminate with the original agreement and relate the two agreements to each other. Understand what contractual relationships cover what assets and what assets are covered by what contracts. Watch the small print carefully, since if assets are not returned within a specific timeframe you are liable for additional rental fees. Suddenly the cost benefits of renting the equipment are quickly diluted and you are paying for equipment you can`t find."
Realyst has incorporated a specific module into its contract lifecycle management solution to assist organisations in managing office automation contracts and the associated assets. As these assets are rented, they do not appear in the asset register and organisations find it difficult to keep track of what has been rented and where the assets are located.
"The returns through managing these contracts more proactively are staggering," concluded Maddison. "Cost leakage amounts to between 10% and 15% of overall spend on rental agreements. By implementing the correct contract management tools and business processes, these costs can be significantly reduced if not eliminated."
For further information, please contact Tony Maddison: telephone (011) 463 5311, fax (011) 463 7179, e-mail tmaddison@realyst.com.
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Realyst was established in 1998 and is the leading provider of contract lifecycle management solutions in southern Africa. Realyst provides the technology solutions as well as consulting services spanning the implementation of best practice contract management methodologies and processes, education and training. Realyst offers gain share engagements designed to optimise organisations` contractual relationships and to deliver quantifiable savings using the Realyst processes and supporting technologies.
The services offered by Realyst include business process mapping, programme and project management, business consulting and where required, full business process outsourcing.
Realyst has developed and markets two software applications, Premises Manager and Contract Manager.
Premises Manager, launched in 1998, is a premises management system designed for the users of property and has achieved significant success in the retail sector.
Contract Manager, launched in 2002, is designed to facilitate the management of contractual relationships across the enterprise.
The Realyst user base includes several large corporate organisations including Altron, Discovery Health, Foschini, Johnnic, MultiChoice, Nike, Primedia and Woolworths.
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