A $2.7 million saving that wasn't a saving

The company was trying to become one customer

The enterprise workflow platform was already important to the organization, but the commercial structure did not yet look like one global enterprise.

Different regions had different arrangements. Europe had reseller-based agreements. The Americas had its own timing and economics. APAC was being brought further into the platform. Products, user counts and renewal dates did not line up neatly.

For the CIO, the opportunity was larger than a conventional software renewal. Could the company move toward a single global commercial structure, standardize more of the platform and create room for future growth?

That sounded attractive. It also made the financial comparison much harder.

The old number was real — but incomplete

An early global-contract strategy showed an annual run cost of roughly $922,000 for the existing environment excluding Europe. The proposed future structure was approximately $1.014 million per year for three years.

If those were the only two numbers shown to Finance, the project could look like a cost increase.

Early commercial view	Approx. value
Current annual run cost (excluding EMEA)	$922K
Proposed annual global-contract cost	$1.014M
Proposed three-year cost	$3.042M

But the future requirement was not the same as the old one. APAC was being added more fully. License quantities required true-up. Growth had to be accommodated. Europe would eventually move from reseller arrangements into the global model. The organization was also standardizing capabilities.

The right question therefore wasn't whether the new contract was cheaper than today's invoice.

This is where savings conversations go wrong

Business cases like this create a temptation. A team negotiates a much better future position. Someone calculates the difference against what the company otherwise expected to pay. The number is large. Then the entire number gets called "savings."

The problem is that several different things may be hiding inside that word. Some value reduces an existing budget. Some prevents a supplier increase that had not yet hit the P&L. Some comes from changing quantities or scope. Some represents better total cost over a multi-year period.

All of those can be valuable. They are not the same thing.

The future-state comparison

As the global platform strategy matured, the company built a future-state commercial model rather than relying only on current run rate.

Three-year comparison	Approx. value
Expected future-state TCO without the negotiated outcome	$9.099M
Executed / negotiated TCO	$6.385M
Difference	$2.714M

Commercially, the result was significant. But Finance still had to answer a more disciplined question.

What would you do?

Imagine you are the CFO reviewing the business case with the CIO. The technology organization has negotiated a future agreement approximately $2.714 million below the modeled three-year cost of the alternative future state. The commercial result is well supported, but the comparison includes growth, true-ups, regional expansion and future supplier economics.

Option	Choice
A	Call the full $2.714M hard savings. The company negotiated it, so it is savings.
B	Reject the value entirely because the company is still spending more than today's historical run rate.
C	Call everything cost avoidance. It is future-state value, so none of it should count as savings.
D	Build a bridge from today's approved baseline to the future state and classify each component according to what actually changed.

Which answer gives management the most useful picture of the decision?

What happened

The company treated the $2.714 million as cost avoidance rather than pretending it was a like-for-like reduction in existing spend.

That did not make the commercial outcome less valuable. It made the claim more credible.

The organization had negotiated against a future state that included real growth and expansion. The agreement reduced what that future was expected to cost. Finance could therefore recognize the economic benefit without implying that $2.714 million was being removed from an existing budget.

Before and after

MeasureBeforeAfter

Commercial structureRegional and reseller agreementsOne global contract

Baseline usedToday's invoiceModeled future state

Value label\"Savings\"Cost avoidance

Measurement rulesSet after the dealAgreed before the deal

Why the baseline matters before the negotiation

If Finance and the business wait until after the supplier agreement is finished to decide how value will be measured, the winning outcome can influence the baseline. That creates an obvious credibility problem.

The better approach is to agree the rules first. What is the current baseline? How will growth be treated? What counts as demand reduction? How will implementation costs be handled? What qualifies as cost avoidance? Over what period will TCO be compared?

Once those rules are set, the commercial result can be measured against them rather than the other way around.

The Parsimoney lesson

Parsimoney separates commercial value into categories because executives need to know what actually happened.

Value type	Plain-English meaning
Finance Impact	We reduced a cost that otherwise would have remained in the financial baseline.
Demand Management	We changed how much the business needed or consumed.
Cost Avoidance	We prevented a credible future cost or increase from materializing.
TCO Impact	The full comparable economic outcome improved after scope, timing and implementation are normalized.
Other Commercial Value	We improved flexibility, risk, working capital, service or protections without forcing the benefit into a savings number.

The CIO and CFO were solving different parts of the same problem

The CIO needed a global platform structure that could support the business. Finance needed a financial story that could survive scrutiny.

Those goals were not in conflict. The commercial decision became stronger when both were satisfied. The technology team could say: "This is the right future structure." Finance could say: "And this is the value we can responsibly attribute to it."

That is a far stronger management conversation than arguing over whether a large number deserves to be called savings.

Why this case matters

Organizations with little formal procurement capability often measure supplier initiatives with a simple before-and-after comparison. That works when nothing else changes.

But important business decisions rarely stay that simple. Companies grow. Demand changes. New regions are added. Products are upgraded. Implementation costs appear. Suppliers propose increases. Contracts cover different periods.

The more strategic the decision, the more important it becomes to separate the quality of the commercial outcome from the accounting label attached to it.

You can create enormous value without reducing today's spend. And you can report an enormous "saving" without creating much value at all.

Three questions to take back to your business

#	Question
1	Did you agree the baseline before you knew the negotiation result?
2	Can Finance reproduce your savings or avoidance number from the same source evidence?
3	Are you calling different kinds of value "savings" because it is easier — or because it is actually correct?