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An IT manager speaks out: "The most difficult budget challenge I've ever faced"

When you negotiate effectively with vendors, you might discover more room in your budget. See how tough negotiating strategies saved one IT manager $50,000 and salvaged an otherwise-doomed budget.


By Angel Martinez

Most IT departments have a growth plan and a good idea of what projects need to be incorporated into the budget for the following year. But what happens when you receive an unexpected call like the one that I received?

“We need to change our LAN to take advantage of the latest technologies.”

In short, there goes my budget.
Angel Martinez is the network engineer for a company that sells software and hardware through catalogs and on the Internet. In this article, he describes how tough negotiating with vendors allowed him to find the money he needed to complete a major project.
The unexpected project
We had budgeted for aggressive growth of our e-commerce assets for the year 2000. Our company is making a shift to the Web, and we adjusted our project plans accordingly. The budget looked really good. There was even a little bit of room to play with.

Then the boom fell. Our network infrastructure was found lacking. Its backbone consisted of one 10mbs class C TCP/IP network. We rapidly outgrew this due to our e-commerce expansion. The response: Fix it.

This type of project was definitely NOT in the budget. So began the odyssey. My first response was to come up with a paper solution. I selected a plan, redesigned the LAN, and began soliciting information from our internal personnel. I identified who would be impacted and communicated with them extensively. I researched every solution imaginable. Remember, I now had to squeeze this into a budget with very little room in it.

I finally arrived at a workable plan and put together a request for proposals. The initial numbers were heart wrenching. The costs were threatening to put us $50,000 over budget. This was a no-win situation.

Renegotiating with vendors
I went back to our stakeholders to renegotiate the solution. They were agreeable with the plan but they did not want to put out the extra monies.

My next step was to evaluate our projects for the year and ask these questions:
  • What could be pushed back?
  • What could be renegotiated?

There wasn’t much there. I had only one choice—go after the vendors. I had to negotiate with a dozen vendors. Most were hardware distribution channels, and many times I spoke directly with manufacturers.

I renegotiated costs for all of the projects on our schedule. I asked questions such as:
  • How much do I need to purchase from your company so that maintenance services will be reduced?
  • Are you willing to spread this cost over a longer time frame?
  • If I increased my order, would you provide a volume discount?

The vendors weren’t happy, but they continued to submit updated quotes and bid for the business. That was a good sign. I even initiated negotiations with other vendors and directly with manufacturers. I made it clear to the vendors that I was looking at their competitors as well.

A volume discount saves money
There was a very tight deadline, so negotiations were done quickly. I finally pushed most of the business to one vendor. Here’s how this solution worked.
  • The vendor made it cost effective by giving us large discounts for the number of components I was buying.
  • We gave them business for five of our projects this year.
  • They quoted the projects together as a block and allowed us to complete the purchases according to our calendar schedule.

Hey, there’s nothing wrong with a little creative financing. It can help in a pinch. The best part is that the vendor had everything I needed, even the expertise.

After a week of playing phone tag, responding to e-mails, and evaluating proposals, I finally took a look at all the numbers. Our budget was saved.

What I learned
Throughout this process, I discovered that negotiations are the key, with both accounting and with vendors. The more creative your negotiating strategies, the more successful you will be.

Our budget would have been doomed without the vendor negotiations. As a project manager, you need to work to establish the best relationships with your vendors. Most won’t consider you unless you are a big spender. Here are some suggestions:
  • Always try to establish the best working relationship possible with all of your vendors. Make them feel good about doing business with you, but don’t let them believe that they are the limits of your earth.
  • Don’t be afraid to put vendors under the gun when it comes to cost. They can work some miraculous changes in their quotes if you know how to approach them.
  • Often, vendors have already sent you a list of costs for the project. Don’t be afraid to revisit those quotes with them. Reductions in cost for each project can save your budget and make you look like a hero.

Negotiate with accounting
Project planning is made more difficult by the different perceptions of the cost of today’s technology. You can design and plan a high-powered project and integration plan, but if it doesn’t meet the perceived value of the technology, chances are it’s doomed.

Planning projects for a yearly budget is almost impossible. How do you convince the finance team to give you money for the unexpected? It just doesn’t work that way. It must be tangible, or there is no money for it. When dealing with the people inside your organization:
  • Try to establish a rapport with the decision makers. Remember, they are closer to the big picture than you. You could get some valuable information that can help with your budget and project planning.
  • Ask the right questions.

The outcome
As a result of our creative negotiations, we actually were able to get all the projects completed—including the network redesign—under our budget. This saved us money and left us with a cushion for other unexpected needs.
Have you grappled with a tough project that taught you a valuable lesson? Share your experiences with other IT managers. Post your thoughts below or send us some mail.

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