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Companies often try to expedite projects and tech implementations to quickly demonstrate ROI. But in some cases, a better plan is to slow the rate of IT spend to optimize budgets and control costs.
Recent Tech Pro Research survey data indicates that IT budgets will continue their conservative yet upward trends by staying within 5% of 2016 levels for 2017. However, modestly increased IT budgets don't mean that CEOs, CFOs, and CIOs aren't going to expect even better results from their technology investments than they are already getting.
Most present investment optimization has been occurring on the IT side. It has been realized through the shortening of projects and the creation of faster time-to-market for new technology. Likewise, the payoffs of technology investments and implementations are being recouped in shorter periods of time to prove out technology returns on investment (ROI)—with many organizations expecting that a newly implemented technology project will pay for itself within one year's time.
But there's another financial side to getting the most out of IT spend that has little to do with how quickly technology is put to work. These financial strategies are used by companies to slow down the rate of payment on new technologies so that organizations can optimize their budgets and better manage the outflows of cash for new technology investments. Here's how these financial strategies work.
SEE: Tech budgets 2017: a CXO's guide (ZDNet/TechRepublic special feature)
Cloud computing solutions have enabled many companies to operationalize their computing costs without incurring lock-ins to lengthy asset depreciation cycles that characterize capital investments for on-premises computing. Vendors have responded to these market pressures by offering more cloud solutions and by offering flexible on-premises computing options that can be priced on a per-use or subscription basis just like the cloud. The result is a greater degree of choice for IT implementations without the fear of financial lock-in to asset depreciation cycles. This can be a great strategy for an organization with a hybrid computing architecture that uses both on-premises and cloud-based systems.
Proof of concept before system purchase
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More companies are demanding to see a new system in action at their businesses, producing the results they're expecting before they sign a contract. For a trial period that typically ranges from one to three months, they have the system for free. If the system doesn't work, they are under no obligation to pay for the trial. Most of the time, the system is a fit and the parties move into a contract. If for some reason it isn't a fit, there is an opportunity cost for the vendor—but for the company, it is cost avoidance. This strategy works best for large enterprises that need large systems.
Leases and discounts
Leasing (instead of buying) hardware and software continues to be an option for companies that use on-premises computing. The vendor (or a vendor affiliate) provides the financing. Although leases can be amortized, they can also be expensed. This gives a company financial flexibility in managing the IT spend. A leasing option with a vendor company can also provide deep discounts when software licenses and hardware are bundled under one contact. The downside to the proposition is that you are locked in to the investment for what typically is a three- to five-year period.
More companies are asking their vendors to buy back antiquated technology in exchange for replacing that technology with the vendor's product. This is a win for the company because old equipment and software can be removed from depreciation schedules, bringing instant relief to corporate balance sheets.
Training (and retraining) of IT staff and business users is a major challenge for businesses as they move into edge computing, mobile computing, the Internet if Things (IoT), and analytics. Many companies negotiate free training as a condition to any contract they enter into with a new vendor, which eliminates the training expense.
New technology breakthroughs continue to challenge corporate IT budgets. For many years, companies have managed these challenges by cost-justifying projects and and then managing IT spend—typically by speeding up projects and developing ROI formulas that illustrated faster returns on investment. Now they have chance to do even more by managing the rate of their IT spend. An appropriate mix of financial cash management strategies that go hand in hand with technology implementations can help push more companies in this direction.