IT Procurement Best Practices to Reduce Risk in Cloud Contracts - Slide 2

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Despite the significant business-criticality of certain cloud applications, Gartner analysts have seen numerous contracts that have no uptime or performance-service-level guarantees at all, or that are only provided as a changeable URL link. Cloud contract negotiators must be aware of the performance service levels required and ensure that they are documented contractually, ideally with penalties, if the performance standards are not achieved.

IT procurement or sourcing managers challenged with finding sourcing options that reduce costs at tolerable risks should examine nine contractual terms to reduce risk in cloud contracts, according to Gartner, Inc. The cloud delivery model is gaining popularity, but it includes risks that are often unclear or overlooked when assessing the appropriateness of the sourcing model.

"Cloud solutions often appear to have lower initial and switching costs than traditional solutions, but include hidden costs and risks, and require unique terms for contract protection, compared to traditional arrangements," said Alexa Bona, research vice president at Gartner. "Many cloud providers appear reluctant to negotiate contracts, as the premise of their core model is a highly leveraged approach. The starting point contractually often favors the vendor, resulting in a potential misalignment with user requirements."

When assessing cloud offerings' procurement and sourcing, executives need to understand what can be negotiated relative to risk elements, what they need to pressure cloud providers to offer, and what will likely not be negotiated.

"Cloud markets are generally still very competitive, and it is important for sourcing and procurement executives to leverage competition to optimize negotiations. They should be prepared to walk away from deals, if some of the risk elements are not satisfactorily addressed," said Frank Ridder, research vice president at Gartner. "As this computing model is relatively nascent, we believe that, over time, the combination of buyer pressure, and a provider desire to reduce the length of negotiation cycles and number of customized deals will mean that some terms will evolve to more of a middle ground, rather than the current contract practices, which are mostly provider-centric."

The nine key terms to understand in cloud deals to mitigate excessive risk include:

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