Simply put, an IT service and pricing model is the contractual agreement between your organization and the IT service vendor, governing the manner in which the vendor will bill the service seeker. Not long before, the two basic pricing models for almost all kinds of services were the Time and Material model and the Fixed Price model.
However, with the focus shifting from mere delivery of the services to the formation of long-term bonds with customers by delivering collaborative solutions, pricing models have also undergone a shift. Today, managed IT service delivery model is adopted by major IT consumers of the business world, whereas some also like to consider the per-incident model. Let’s understand the intricacies of both models in detail, and see which one’s better.
Managed IT Service Definition
Managed IT services allow businesses to contract or subscribe to a vendor's IT services. These services can be utilized to relieve in-house teams of their workloads, complement teams that are insufficient to fulfill IT demand, or completely replace in-house teams. In addition, managed service providers (MSPs) can help ensure that IT tasks are covered 24 hours a day, 7 days a week, and provide specific knowledge or expertise that might otherwise be unavailable.
Internet of Things (IoT) — An emerging network of tangible things and devices with software, sensors, and internet or private network connectivity that can share data using standards established by the International Telecommunication Union's Global Standards Project.
IT channel — An industry-exclusive marketplace where VARs, MSPs, and OEMs join with hardware and software manufacturers to provide end-users with platforms, products, and services.
Labor arbitrage — The phenomena of lowering end costs by exploiting untapped global workforces' plentiful labor forces, knowledge, and training.
Managed IT Services— IT Duties & Processes Completed by a Third-party Firm
A value-added reseller (VAR)— A company that enhances a product by adding services or features before reselling it as a new product/ service.
History of IT Managed Services & Its Benefits
Managed IT services arose in the early 2000s. However, information technology services and management were initially provided on a break/fix basis, which meant that an expert only handled computer systems when they broke down and required a specialist to repair them.
However, as computer manufacture became more widespread, small IT dealers were forced to focus less on production and more on break/fix. This system was labor-intensive, time-consuming, expensive, and reactive. As the number of computers on the market rose year after year, the gap between break/fix technicians and the number of machines they could reasonably serve under the break/fix model widened. To satisfy this demand, managed IT services arose departing from the break/fix model. This innovative, proactive approach to IT was lauded for attempting to make routine maintenance, upgrades, system monitoring, and issue resolution to avoid problems from occurring in the first place. In addition, automation improved internet capabilities, and cloud computing enabled remote monitoring and problem resolution, resulting in more efficient operations and resource consolidation.
Managed IT has become the industry-standard strategy to maintain computer systems large and small for SMBs due to efficiency, consolidated resources, and client satisfaction, as well as fixed pricing, the capacity to offer more service offerings, and the opportunity to take on additional clients.
Managed IT Service Model
IT Managed services are often supplied in tiered levels at a flat, recurring charge, with higher levels providing more automation and management based on the service level agreement. Customers or end-users pay for the services they consume, and they can change their tier as business needs and demand change. Off-site services like remote monitoring and administration, help desk solutions, backup and disaster recovery, and more are paid for by the end-user, just like other essential business activities like utilities. As a result, customers can manage their businesses more easily and efficiently with the help of MSPs. They also provide SaaS-based solutions at a lower cost than in-house alternatives.
On the other hand, managed services do not necessarily render corporate IT professionals obsolete; for end-users, an IT professional can serve as an endpoint liaison, manage the relationship, provide feedback, and analyze the MSP's reports. In addition, because the MSP handles most of the everyday tasks, the IT professional has more time and freedom to concentrate on larger, more difficult projects that they wouldn't have time or capacity to handle otherwise.
What’s the Per Incident IT Support Model All About?
The per-incident IT service delivery model is adopted in organizations with very basic IT service requirements. Services such as IT help desks often prove to be decent candidates for the per-incident model. The delivery managers from the vendor’s side work in collaboration with your organization to understand your unique requirements, the estimated call volumes that the service desk support personnel would need to attend per month, the volumes of tickets (incidents) that will be logged per month, the expected support hours and work timings, estimated call handling times, kinds of applications covered, and of course, the Service Level Agreements or SLA.
Based on the quality and quantity parameters a per-incident price is agreed upon. This per incident price is multiplied by the agreed estimate of monthly incidents, and the monthly base billing price is established. Any incidents worked upon by the IT vendor can be charged in accordance with the per-incident price. The IT vendor does its staffing based on the estimated monthly average inflow of tickets.
Managed IT Services - Low Risk, Forward-Looking IT Model
In a managed IT, service model, the service provider has the end-to-end responsibility of delivering the expected IT services, governed by well-defined service level agreements. All decisions regarding the delivery of the project are taken by the IT vendor, and customers are billed at a pre-determined fixed price plus additional price based on additional units of service delivered to the customer. Missing the SLAs means the vendor is held liable for penalties, and the achievement of all SLA norms also implies financial rewards for the vendor. Many enterprises adopt the managed IT service model as an extension of existing staff augmentation.
Let’s understand the key benefits that the managed IT service model brings forth for the service seeker.
The managed IT models bring together the best attributes of the T&M and FP models, to deliver the best benefits to the organization availing IT services. With end to end responsibility of seamless IT service resting with the service provider, the organization’s role is limited to budget tracking and quality evaluation. By tying each missed SLA with a monetary penalty, the organization ensures that the IT vendor is self-driven to achieve the highest possible SLA levels. The customers are able to establish a middle ground between hourly payments and single-time payments. Customers can optimize their budget without the need for any compromises in terms of deliverables’ quality. The managed IT model mitigates risks for both the organization as well as the service provider.
For the service provider, the managed IT model leaves scope for ramping up the delivery in order to achieve established SLA norms, although that inflates the cost of the project delivery. Because of the mutual benefits shared by the client and the IT vendor, along with the inherent low-risk approach of the model, the managed IT service model has become the most preferred, particularly in IT engagements where the scope of work can be clearly defined and tied to well-defined SLAs.