IT managers are under pressure to meet the financial expectations of executive management. One of the biggest challenges involved in that effort is analyzing the cost involved in ownership of computer and network technologies. In this article, the first of a two-part series, we’ll review current business practices associated with the purchase and maintenance of equipment, and explore opportunities for reducing total costs. In part two, we’ll focus on ways to finance equipment purchases.
The total cost of ownership can be broken down into four major categories:
- Cost to acquire
- Cost to maintain
- Cost to retire
- Cost to finance
Cost to acquire
Here are some strategies for reducing costs in acquiring equipment and technologies:
Reduce number of vendors. This strategy will generally lower purchase costs because of larger discounts associated with larger orders.
Buy direct. Buying direct is usually best and is the model many manufacturers are moving to. Since technology changes quickly, this may be one of your key business practices. The good news is that you don’t have to be a major corporate customer to buy direct.
Discount contracts may not be best. It may not make sense to sign any sort of upfront, discount contract with your vendor. This is especially true for small to medium size businesses. For some vendors, it’s better to negotiate a price on each order, providing you have the ability to plan and properly administer the ordering process at your company. The vendor will factor a discount based upon your projected annual purchases. Like many other businesses, however, prices will vary according to the number of units you order and for orders placed at the beginning of the vendor quarter versus the end of the quarter. Discounts or other promotions are usually better at the end of a quarter when sales quotas need to be reached or exceeded. Sales commission levels are usually higher on amounts sold over quota and this is the time to get the best deals.
Technology road maps. Knowing the life cycles of the technologies you bring into the company will allow you to purchase more strategically and keep your environment more homogeneous. You should consider dealing only with vendors that will provide life-cycle information, usually under nondisclosure. The term “End of Life” usually means that the model is being replaced by a new model and is no longer being sold. For computers, this usually means that new models have new drivers that will make them less compatible with current computers. Many companies have reduced support costs by creating a master model configuration and then using technologies to take an image of the master and then easily and quickly updating every computer of the same model throughout the company. This is called drive imaging and there are several vendors that offer excellent products to make this possible. Even computer manufacturers like Dell will offer to provide this service on every new computer sold to your company. Another advantage of a drive image is that users will have a disaster recovery plan. This is extremely beneficial for the remote laptop user whose hard drive has just crashed.
Streamline the ordering process using the Web. Larger companies are providing internal Web sites from where an employee can directly place the order, route to a manager for approval, tie into the purchasing, and deliver the order to the vendor. Depending on the size of your company, this can provide significant savings.
Cost to maintain
Users expect their computers or the services they access to be available all the time. Here are some ideas for lowering costs while maintaining reliability.
Add more headcount for free. Many equipment vendors that are focused on customer satisfaction know that equipment that works as it should is critical for repeat business. Manufacturers’ extended warranties are a bargain and a few will cover breakage and premium support for a few dollars more—Dell, for example. This strategy will reduce costs because the manufacturer will take care of all repairs or replacements and can provide service wherever the computer is located.
Set company standards. I once took the time, while working as an IT manager, to count the technologies that were supported, and the list was in the hundreds. Setting standards not only lowers the costs to acquire equipment but also lowers the costs to maintain it since you’re supporting fewer types of equipment. Generally, standards have to be tackled in a simultaneous equation. There’s the vendor standard and then there’s the model standard. You need a good review of the models across vendors in order to pick a vendor. Then you need to do a second pass to re-review the model standards based on the selected vendor’s technology road map. Other influential users in the company can participate in the model reviews. The IT manager and finance need to be involved in the vendor selection.
Spend money for redundancy. Technology and equipment prices have dropped to a point where redundancy for network and servers must be a priority, not only for critical systems such as Web commerce sites but also for the majority of your infrastructure.
Cost to retire
Asset tracking seems to be a low priority for many companies, and the costs here really can add up. Consider these strategies when liquidating technology assets:
E-bay or employee sales. The effort to sell or liquidate technology assets can be extensive. Even donations require time to collect the equipment, remove information, and to pack and ship it.
Cost you don’t anticipate. Other hidden costs for not jettisoning the old equipment include paying personal property taxes or storage costs on equipment no longer in use.
As we mentioned earlier, the cost to finance equipment is one of the four major categories to be considered when calculating the total cost of ownership. One way to reduce costs is not to own the equipment at all, but rather to lease it.
Cost to finance
Part two of this article will focus on equipment financing and the pros and cons of leasing vs. purchasing hardware.