When you are considering
the cost of your organization’s technology, you must consider its life cycle
and make allowances not only for the purchase price of the technology but also
its support costs.
Every mechanical device
has a life cycle. In the early days of the device, there is a period of
“shaking out” when a relatively large number of problems will be discovered. This’s why many mechanical devices go through a burn-in
period at the manufacturer in an attempt to work out the problems. This is
generally followed by a long period of relatively low problems. Finally, a
gradual climb in support costs ensues.
Think of it like buying a
car. If you have ever bought a new car, or have known someone who has, often
the new car has a few kinks. After the first month or so, the car settles down
and generally has few problems. Once the car has become a few years old, it
begins to develop problems. The problems may be gradual at first but
eventually, if you keep the car long enough, you begin to feel that it is
nothing but problems.
The technology that you
use in your organization is the same way. Every piece of technical
infrastructure you have will work well at first, or at least well after the
burn-in period, and then slowly start to deteriorate.
This is one of the
reasons that older computers need to be replaced — even if they’re still
operating fast enough for their users. Eventually, they’ll break down and will
need to be repaired or replaced.
In the computer world, it
is more likely that the capacity of a device will be outstripped before its
life cycle begins to show the slow rise of problems. For example, the core
switch which housed 10 Mbps Ethernet just is not fast enough, or the
replacement with 100 Mbps connections is not fast enough either. Today’s
switches with 1 Gbps connections will not be fast enough in just a few years. The
amount of capacity that we are consuming, whether it’s network speed, hard disk
space, or processing speed, is growing. Even with careful capacity planning, it
may be necessary to replace some devices on a cycle of three years or less.
The challenge is that
often when we upgrade to a new device with the capacity we need, we move the
previous device into a supporting role. It may aggregate many connections, or
may be used for less mission critical tasks, or may simply be assigned new
tasks. This reassignment is a prudent way to manage resources – that is, until
the life cycle starts to catch up with the devices.
The key to a well-formed
technology replacement strategy is knowing when it
will be necessary to start replacing the technology. Most organizations have
enough data to make educated guesses about when technologies will need to be
replaced. The dollars and cents of this estimate is a relatively simple
equation which calculates the cost of support compared against the acquisition
The support cost equation
adds the costs associated with:
- Reduced productivity — How much will be lost in a
given year due to the lack of speed in the existing solution?
- Down time — How much will it cost to have an outage
in the component multiplied by the probability that the down time will
occur in a given year?
- Support Agreements — If the device is beyond its
warranty period, and it is necessary to maintain a support agreement for
it, the cost of the agreement should be added in.
- Support Calls — If the device is beyond its warranty
period, and you elect to pay for service calls, the cost of those calls
multiplied with a best guess estimate on the number of calls should be
- Staff support time — If your
IT staff will have to invest time in supporting the solution, it should be
added to the overall support costs.
This is compared with the
costs associated with the acquisition of a replacement:
- Acquisition cost — the actual cost of the device. This
should include any taxes or freight.
- Setup cost — the cost to get the device set up on the
network to replace the existing device. This should include any fees, as
well as staff time, multiplied by a reasonable rate.
- Learning curve — The time that your staff and the
users will need to understand the new device multiplied by a reasonable
rate to convert it to a cost.
- Risk — Some assignment of a dollar value to the risk
that the new system will not work or will not work as intended. Every new
device has some risk. The newer the device being proposed for acquisition,
the more risk is associated with it.
- Support costs — the cost of supporting the item for
the first year. This should include agreement costs, support call costs
and staff time costs.
Comparing the two numbers
side-by-side can tell you whether a replacement makes sense or not. However,
often a direct comparison of single year numbers is not always sufficient to
demonstrate the need to replace hardware. Sometimes, particularly with
acquisitions with long life spans, it is necessary to carry the support and
acquisition costs together over a multi-year period to determine when and if
the replacement is warranted.
The long term replacement
Taken to the next step,
you should be able to predict the time when the replacement cost for a device
will be more cost effective. It is this evaluation – when it is more costly for
the organization to continue to use and support a device – which is the core of
a technology replacement strategy. Each device type is evaluated and an
evaluation is performed on the reasonable replacement life cycle.
The following may help
you get started by providing some rough guidelines for replacement of various
kinds of technology devices:
3-5 years depending
Strategies that Scale (e127)
TechRepublic’s free Strategies that Scale newsletter, delivered each Tuesday, covers topics such as how to structure purchasing, when to outsource, negotiating software licensing or SLAs, and budgeting for growth.Automatically sign up today!