Managed Services is frequently mistaken for a fixed-rate version of the break-fix model, but it is more than just a different billing arrangement for IT services. Customers often enjoy a flat-rate billing model because expenses are fixed and cashflow is consistent and predicable, but that’s a small piece of a much bigger picture. One of the key differentiators is prevention and protection, which inherently does not exist in a break-fix model.
We see a similar model in other industries under different names. Some doctors are beginning to charge annual fees to utilize their services under a “concierge” plan, typically around $100 per month, and they provide more preventative care in an effort to keep their patients healthier.
The Managed Service model aligns the needs of the customer with the incentives for the IT service provider. Customers want maximum productivity, meaning minimal IT issues. Managed Service Providers (MSPs) want to minimize time spent fixing issues if they’re not being paid per-issue, and it’s far less time consuming to prevent an issue than it is to fix it. Under a flat-rate model, the risk shifts onto the IT service provider, and therefore the responsibility also shifts onto the IT service provider.
The opposite situation exists in a break-fix model, and is sometimes referred to as the “principal-agent problem”. The break-fix provider makes the most money when you have the most problems; they make the most money when they work slowly; and they make more money if they fix a problem more than once. This is inherently not in the best interest of the client.
The benefits of Managed Services extend far past minimizing downtime and increasing efficiency. Security has arguably become more important than uptime, and a break-fix model inherently puts little emphasis on IT security. Sure, you could pay a firm to come in and implement security for your organization, but it’s going to cost a fortune; an initial IT security implementation may only take a few days but you’re paying for the knowledge of the firm rather than their time to implement the solution. MSPs develop and implement security frameworks that can be replicated across their entire client base, often in an automated or semi-automated fashion, and the cost of those tools and R&D gets distributed amongst those customers. By keeping a standardized security stack across all customers, modifications can be done incrementally without requiring a full re-evaluation of every customer’s IT infrastructure.
Deciding Between Managed Services & Break-Fix
Managed Services is not for everyone. For most companies, the benefits far outweigh the costs, but that doesn’t universally hold true. Here’s a guide to deciding what is best for your company:
- Cost of Downtime: One of the primary goals of Managed Services is to reduce downtime. If downtime doesn’t cost your company a lot of money, it may not be beneficial to spend the money on a Managed Services plan. Downtime calculation spreadsheets have been created to help with this analysis, but you can do a basic calculation to get a rough estimate:
- How much revenue does your company have on a typical business day?
- If you suddenly had no computers, how much less would that revenue be?
- How many days it would take to rebuild your entire IT environment from scratch?
- Multiply the difference in your revenue by the number of days to get your expected loss from a major IT incident
- Cost of Security Breach: Companies use their technology differently. Some store sensitive customer data and, in the event of a breach, could be responsible for hundreds of thousands of dollars (or more) in damages. Simply having to notify your customers in the event of a breach can be extremely expensive. On the other hand, some companies do not store information on their computers, and only use basic tasks such as internet browsing.
- Estimate your exposure to data leaks
- Account for other security breaches that don’t involve data leaks, but will impact your operations. How damaging would it be if a crypto virus encrypts all of your data and you can no longer access it?
- If you don’t store a lot of data and won’t be impacted if you lose your files, or even the ability to use your computer, Managed Services will benefit you less.
There tends to be a strong correlation between company size and benefits of Managed Services. As a company becomes larger, they tend to benefit more from a Managed Services plan. Most companies with more than 10 regular users of computers tend to have a high enough cost of downtime and risk of security breach that the benefits of Managed Services outweigh the costs, but the calculation still needs to be done on a company-by-company basis to accurately answer the Managed Services vs break-fix question.
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