Of the three categories, transition costs to a new vendor are probably the hardest to pin down. Think about outsourcing internal IT to an external supplier. If internal IT has a wealth of expertise in important legacy or one-of-a-kind systems, the transition will not be complete until that information is transferred. That process can take as long as a year.
When switching from one IT vendor to another, the transition will be faster and less expensive, assuming there are no penalties for breaking a contract. Generally, the more competent and professional the two vendors involved are, the easier the transition is. Equally important, there will be less disruption during or after the transition, which is another form of switching expenses.
The cost of management after transition will also depend upon the competence of the new vendor. That’s because these costs can be minimized if the vendor fulfills its obligations with little guidance and supervision.
What this points to is that the way to minimize vendor replacement costs is to make sure that the search and contracting process is thorough, which will help reduce secondary expenses from transition and management. So, it’s important to exhaustively evaluate a potential new IT vendor to see if it possesses the necessary breadth of expertise, experience, services, and support to accommodate your company’s needs.