Bijuraj Sarangi

There is a conversation that happens in every large telco, bank, or any industry going through transformative change. It goes something like this –

“Vendor A is x% cheaper. We’re in a cost-reduction year. Save money.”

“Can we manage with internal people? Can we get a Hyperscaler to spend rather?”

“What’s the minimum we can get moving with the budget we have for now?”

In each scenario, the answer is always the cheapest alternative, something that manages the KPIs for the year. Unfortunately, 2–3 years later, the organization is staring at a transformation program that was supposed to take 4 years and now looks like it will take 6, a balance sheet with tens of millions in unplanned debt, Net Debt/EBITDA pushing past covenant thresholds, a regulator asking uncomfortable questions, and CXOs who set it in motion have already changed hands.

The small saving that was a moment of celebration turns out to be far more expensive. And the frustrating thing is, it was entirely predictable.

The illusion in the process

When a large organization runs a transformation program, a core system replacement, a digital platform build, a network modernization or something similar, the total budget typically runs into hundreds of millions. These are multi-year, high-complexity endeavors. Yet vendor and partner selection is frequently treated as a procurement exercise first, and a strategic partnership decision second.

The procurement team does its job as per books. Driving competitive tension, benchmarks day rates, negotiates terms, and presenting the board with a clean story. Vendor B saves $Xm versus Vendor A – year1 looks better, saving hits the P&L. At the end of the process, everyone gets rewarded for a prudent cost management.

However, much of the global research shows more than 50% of large enterprise programs overspend their original budget. The Standish Group puts the failure-to-deliver rate for enterprise programs at 56%. Analysys Mason’s research on digital transformations puts the average delay at 14 to 22 months beyond the planned timeline.

So, where does it go wrong?

Let’s dissect this with a fictional example: Company X

Now if you look at above, and consider the immediate cost saving KPI, the need to show something to the shareholders quickly leads to a decision in favor of Scenario B – Low Cost. It promises an immediate Year 0 saving on the books and sounds like a calculated risk at the get go.

Now, if we replay what we typically see in such scenarios where delivery issues start popping up. let’s assume the delivery program moves like this, which is not different from many similar programs.

• Q3 – first delay surfaces. Vendor reports slippage, but is reported as manageable, a rework cycle triggered.
• Q5 – delays accumulate. data migration issues, integration issues, faulty builds, SIT failures, requirement gaps flagged by business teams.
• Q7 – program is missing timelines by over a year. Board asked to revise all targets and approve additional cost.
• Q9 – Board decides to replace or heavily penalize the delivery partner, a decision 41% of distressed programs eventually reach (HfS Research).
• Q11 – Program finally goes live 18 months late. CAPEX burn continues well into years 6 and 7 as the environment is stabilized, integrated, and re-certified.

What does that mean in hard numbers? The Smart Buy program closes its CAPEX book at $255M by year five. Scenario B, still absorbing stabilization, re-integration, and debt service costs, reaches $565M by year 7. The gap of $310M sits on the balance sheet as capitalized intangible assets, depreciating over 7years, generating an annual D&A drag of $27M that Scenario A simply does not carry.

Why did this happen? Five buckets of hidden cost

When you build out the full TCO bridge, taking the year-zero saving as the starting point and working through every consequence, 5 categories of cost emerge that never appear in the original procurement business case.

1. Governance and PMO bloating – When a program enter into distress, its governance structure multiplies. Oversight layers accumulate, weekly crisis steering, external assurance, additional audit cycles, recovery consultants. It becomes a structural overhead that compounds with every quarter the program remains in flight. Research consistently shows that governance cost in a distressed program runs at 3–4x the level of a well-governed equivalent.
2. Remediation and rework – Low-maturity vendors carry a failure rate of 15–25% on complex programs, meaning a material portion of the program will encounter delivery, quality and completeness issues. as per HfS, 41% of such programs look for a partner replacement. As per IDC benchmarks, SI replacement cost at 12–18% of total program value and for a mid-size transformation, that alone erases years of projected savings.
3. Regulatory and legal exposure – An 18-month program delay in a regulated environment, banking, telco, insurance, is not operationally neutral. Operational resilience obligations have hard deadlines. When those deadlines are missed, the regulator does not wait for the program to recover. For a program of this scale and duration, it is a probable cost that should sit in the base case.
4. Revenue foregone – This is one important item, that never appears on a procurement scorecard and it is the largest single driver of the commercial gap. Every quarter a new capability is delayed is a quarter of revenue uplift that does not materialize. that’s an impact of roughly 1-3% of annual revenue per quarter of delay. Compounded across six or more quarters of slippage, the cumulative foregone revenue dwarfs any procurement saving. and unfortunately, this is not recoverable, it’s a foregone value.
5. Customer and competitive erosion – NPS does not recover quickly from a major program failure. Much research done on this topic shows a major service incident removes 10-15 NPS points immediately and Forrester puts the CLV erosion at approximately 2.3% per NPS point lost. Once churn accelerates, the cost of re-acquisition is typically 5–7x the cost of retention. Meanwhile, the market does not pause, and competitors aggressively target these customers. TSR research on FTSE 100 companies experiencing sustained technology under delivery shows underperformance of 15–28 percentage points versus sector peers over the same period.

When you apply these hidden cost levers, the impact becomes significant. In the company X scenario we covered, the year-0 saving of $43M against a 5-year hidden cost delta will land like this.

• Capital overrun (funded through CAPEX): An additional $310M covers extended SI/vendor fees, platform costs, governance, remediation, regulatory, financing expenses beyond budget.
• Revenue and commercial loss (P&L): A direct + indirect loss of $180 – 200M on account of delayed revenue uplift and customer/competitive erosion
• Combined impact: ~$500M against a $43M saving, i.e., a ratio of ~12x

when you expand this impact on the broader business performance and its returns, it looks even worse.

The impact to the business is significant in all fronts. Although the numbers in this company X are all fictional/illustrative, but the core principle of the business impact is real, and it is significant for those businesses who have gone through this in some form or the other. The key Q here is, can these businesses completely avoid such scenarios and not have any impact beyond the plan, the answer is NO. there will always be unforeseen risks and issues which will drive some impact. The real Q is how much of that risk are we willing to gamble with?

The questions that should have been asked in the beginning

The problem isn’t that organizations make bad decisions. It’s that they ask the wrong questions at the wrong stage. As you dissect through and look at the larger canvas, you realize what the procurement exercise didn’t capture in the first place –

1. What is the cost of delay for a program of this scale? business, customer, and shareholder impact if it goes south?
2. Is the vendor matured enough? delivery track record, technology capability, integration complexity, risk management?
3. Does the vendor carry enough wherewithal to manage it if it fails? what’s the recourse?
4. How does this program impact the P&L and balance sheet over 3–5 years under risk scenarios, and how much of that risk can be shared?
5. If EBITDA shortfall pushes leverage above 2.5x, what does that do to our cost of debt and our credit rating?
6. What does 12-24 months of delay cost, in CAPEX, in revenue, regulatory standing, and competitive position?

What good looks like

Few things need to be done differently:

Vendor maturity as a hard gate criterion – a vendor scoring below a defined threshold on delivery capability does not advance to commercial negotiation regardless of price. The due diligence on references, tech capability, business capability, and delivery credibility becomes critical for evaluation and not just the proposal document.

Should-cost model including delay scenarios – before any vendor is selected, the program team should model what a 12-24 month delay would cost the business in terms of CAPEX burn, revenue foregone, regulatory risk, and balance sheet leverage. That number should sit in the board paper alongside the contract saving. It will force an explicit conversation about whether the saving justifies the risk.

Governance structured for early escalations – this is hygiene. There is an overarching command and control layer for overall risk and dependency management, delivery governance, risk identification and mitigation, and overall TCO control. Job of this layer is to make everything transparent, catch the issues before they occur and set controls to reduce impact.

In summary, it all boils down to having the right partner, the right evaluation process and the right KPIs together for businesses to avoid the hidden costs of going wrong in such scenarios. The hidden cost ratio of apparent saving to hidden cost, should appear in the board paper. And until it does, organizations will keep buying cheap and paying for it in ways that show up on the balance sheet, in the regulator’s letter, and in the shareholder returns, long after the procurement team has moved on to the next cost-reduction cycle.