Best practices for optimizing the tech lifecycle

From deployment to operation to expiration, managing technology will be part of your organization and its operations. Learn more about solutions for managing total cost of ownership.  

Tags: Loans, Equipment finance
Published: August 26, 2019

From chasing the latest standards, specs or software trends to keeping up with hardware inventory, technology lifecycle management can present constantly changing challenges for your business.

A lapse in technology updates can lead to cybersecurity issues and general operational problems, but establishing best practices for investing in new tech can offer solutions.

The right financing can help your organization manage its tech lifecycle and dramatically cut costs. Learn more about how to find the right financing for your tech upgrade.

 

Understand the total cost of ownership

Today’s leading-edge technology quickly turns into tomorrow’s old news. Organizations may feel comfortable with their initial tech purchase only to worry about losing an edge as competitors adopt new innovations.

Before a purchase, it’s important to understand the total cost of ownership of your technology, from deployment to operation. Using a cost-benefit analysis as a pre-purchase tool can help.
 

Total cost of ownership for tech

The cost of ownership for tech may be unexpectedly long term. Less than 20 percent of cost is the computer base price. Tech support, maintenance and labor make up 80 percent of the cost. And businesses on average spend 6.4 percent of annual revenue on IT.1
 

 

Cost-benefit analysis example

Hypothetical project: A design company with 30 employees is considering upgrading employees’ dated equipment with new computers and drawing tablets. They hope the new tech will help employees work faster, allowing the company to offer more expensive services and increase revenue.

 

Benefit: $250,000 per year

  •  Increased revenue from selling more expensive services
  • Increased productivity and decreased production costs from faster equipment
  • Reduced energy costs from energy-efficient electronic equipment
  • Improved employee morale working with high-quality equipment
  • Increased business from satisfied customers

Cost: $1,000,000

  • Purchase price for the new equipment and software licenses
  • Total maintenance costs for the next 4 years
  • Staff training on new technology and equipment
  • Opportunity cost of any slowed/missed business due to transition

Conclusion: $1,000,000 / $250,000 = 4 years to break even2


Cost-benefit analysis tips3

  •  Evaluate costs and benefits as honestly and objectively as possible.
  • Work with individuals from affected departments who will have deeper knowledge of hidden costs and requirements for new systems or processes.4
  • Use multiple analyses when comparing projects to determine which will be the most beneficial to prioritize

 

The typical warranty program is three years. When you consider the total cost of owning your technology, focus beyond that three-year date, because that’s when maintenance costs can start to rise.

 

Consider the timing for purchasing and updating technology

When you’re investing in new tech for your business, timing matters just as much as cost. An aggressive update cycle can help mitigate security risks associated with older hardware and software. Hackers have long exploited old software and can find ways to target it directly.5

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Weigh your IT resourcing options

Some businesses have the option to enlist full-time IT team members, while others must seek external resources to support their needs. As technology changes, consider what serves your organization best.9

 

Internal IT
Pros
Cons
Pros

Immediate support:

  • Can respond to requests immediately
  • Attention will also never move to another client

Familiarity:

  • Familiar with your network, systems and processes
  • Physically closer to employees and might recognize problems by proximity
Cons
Cost:
  • Can be a more expensive option when considering salary, benefits, equipment, certifications and training for a full-time IT position

Knowledge

  • Might be limited in expertise
  • May not be able to cover every support function needed by a mid- to large-size company



External IT
Pros
Cons
Pros

Cost:

  • Less expensive than paying, training and certifying an internal professional10
  • Could offer benefits like bulk purchasing for software

Knowledge

  • Access to a wider area of tech support expertise11
  • Capable of advising companies on security and new IT solutions
Cons

Time:

  • Potential delays in support responses

Integration

  • Need time to study your processes and network 
  • Have to review your system after updates or new applications are introduced

 

Section: Just how much is spent globally on IT?

Spending in 2017 for data center systems was $181 billion, the spending for enterprise software was $352 billion, the spending for devices was $663 billion, the spending for IT services was $933 billion and the spending for communications services was $1,392 billion. Overall IT spending in 2017 was $3,521 billion.

Growth in 2017 for data center systems was 6.3 percent, the growth for enterprise software was 8.8 percent, the growth for devices was 5.1 percent, the growth for IT services was 4.4 percent and the growth for communications services was 1.3 percent. Overall IT growth in 2017 was 3.8 percent.

Estimated spending in 2018 for data center systems is $188 billion, the estimated spending for enterprise software is $391 billion, the estimated spending for devices is $706 billion, the estimated spending for IT Services is $1,003 billion and the estimated spending for communications services is $1,452 billion. Overall IT estimated spending in 2018 is $3,740 billion.

Estimated growth in 2018 for the data center systems is 3.7 percent, the estimated growth for enterprise software is 11.1 percent, the estimated growth for devices is 6.6 percent, the estimated growth for IT services is 7.4 percent and the estimated growth for communications services is 4.3 percent. Overall IT estimated growth in 2018 is 6.2 percent.

Projected spending in 2019 for data center systems is $190 billion, the projected spending for enterprise software is $424 billion, the projected spending for devices is $715 billion, the projected spending for IT services is $1,048 billion and the projected spending for communications services is $1,468 billion. Overall IT projected spending in 2019 is $3,846 billion.

Projected growth in 2019 for data center systems is 1.1 percent, the projected growth for enterprise software is 8.4 percent, the projected growth for devices is 1.3 percent, the projected growth for IT services is 4.6 percent and the projected growth for communications services is 1.1 percent. Overall IT projected growth in 2019 is 2.8 percent.

Source: Gartner Inc. 2018.

 

Don’t forget to account for cybersecurity

Technology is an essential part of running a business and makes many processes more efficient, but its prevalence can invite damaging cyberattacks. Cybersecurity serves to guard against potentially serious losses. The following statistics provide further context.
 

Breach prevention measures

  • 52 percent. The percentage of IT decision makers who describe the enforcement of their company’s cybersecurity policies as “moderate.”
  • 47 percent. The percentage of IT decision makers who describe the enforcement of their company’s cybersecurity policies as “strict.”12
  • 39 percent. The percentage of companies that are fully confident that they could identify the source of a breach.13
     

Types of breaches

  • Phishing. 57 percent of large companies experienced a phishing attack in the past year.
  • Cryptojacking. Large company and university server systems are high-value targets for siphoning bandwidth and computer processing power in order to mine cryptocurrency.14
     

Post-breach consequences

The following costs include damages as a result of leaked information, stolen credentials and sabotage to systems or software.

  • $5 million. The estimated average cost of a security breach of systems, applications and products (SAP).*15
  • More than $10 million. What a third of organizations assess the damage of fraudulent actions to be.*
  • 42 percent. The percentage of companies that feel very confident about what data was accessed during a breach.16
    *Respondents are companies with 1000+ employees
 

Project how you can best finance the tech lifecycle

No matter the size of the organization, having proper financing is essential to managing the tech lifecycle. 

For smaller companies, maintaining cash flow can present a major hurdle to the process; for larger ones with thousands of technologies, figuring out the optimal financing arrangement can be a time-consuming task.

 

Finance Market bar chart 2016-2017

Section: Investing in equipment and software

By 2020, U.S. equipment and software investments are expected to reach $1.8 trillion; $1.24 trillion will be financed.

Source: "U.S. Equipment Finance Market Study: 2016-2017." Equipment Leasing & Finance Foundation. 2016.

Section: Types of financing in the U.S.

Financing in the U.S. for software was made up of 25 percent leases, 8 percent secured loans, 15 percent lines of credit, 22 percent cash, 24 percent credit cards and 6 percent other. Financing in the U.S. for computer equipment was made up of 29 percent leases, 8 percent secured loans, 13 percent lines of credit, 19 percent cash, 27 percent credit cards, and 4 percent other.

Source: “U.S. Equipment Finance Market Study: 2016-2017.” Equipment Leasing & Finance Foundation. 2016.

  Lease
Buy
Purchase-ownership advantage
Lease
Up-to-date devices with support
Buy
Straightforward purchasing process
Control over
Lease
Expenditure and cash flow
Buy
Technology used
Cost
Lease
Lower upfront expenditures
Buy
Potential long-term savings (for items that don’t fit the three-year leasing strategy)

 

Two lease options to consider

  • Capital lease: The asset cost is put on balance sheet, similar to a loan.
  • Operating lease: Leased assets stay off the balance sheet, just like renting. For example, the lease originator puts in 15 percent meaningful residual investment, which means 15 percent of the cost will not be on your balance sheet, Iacobucci says.
     

Remember the big picture

Delaying new technology for your business may seem like an easy way to reduce cost, but that fails to account for the bigger picture of the tech lifecycle. “The cost for ownership of technology increases dramatically when an organization doesn’t take into account the full lifecycle cost,” Iacobucci explains. “Remember, there’s a point where purchasing a new PC is cheaper than continuing to operate and maintain an older one, and that extends beyond just PCs.”

Ultimately, it’s not a matter of if you need to invest in new technology, but when and how. Ignoring the technology management lifecycle could impact your return on investment and cybersecurity.

 

Contact U.S. Bank to learn more.

 

 

Sources:

1“Understanding Technology Costs.” Network Alliance.
http://www.networkalliance.com/your-advantage/understanding-technology-costs
 
2“Cost Benefit Analysis Example.” The Balance Careers. 2018.
https://www.thebalancecareers.com/cost-benefit-analysis-2275277
 
3“Cost-Benefit Analysis.” Investopedia.
https://www.investopedia.com/terms/c/cost-benefitanalysis.asp
 
4"IT cost/benefit analysis: Why it matters and how to do it right.” TechRepublic. 2017.
https://www.techrepublic.com/article/the-value-of-it-costbenefit-analysis- and-how-to-do-it-right
 
5“Patch for Spectre, Meltdown causing problems in older chips.” CNN Tech. 2018.
http://money.cnn.com/2018/01/12/technology/intel-chip-bugs-vulnerability/index.html
 
 
6“Equipment Leasing: What It Is and 7 Reasons You Should Consider It.” Fundera. 2016.
https://www.fundera.com/blog/equipment-leasing
 
 
7“5 Reasons Why It's Time To Upgrade Your Servers”
https://www.dellemc.com/en-us/campaigns/dell-emc/checklist-server-upgrade.htm
 
 
8How Long Will Your Tech Devces Last Before You Have To Replace Them” Leapfrog. 2017.
https://leapfrogservices.com/how-long-will-your-tech-devices-last-before-you-have-to-replace-them/
 
 
9“Outsourced IT Vs. Internal IT Department – What’s the Best Choice?” Live Consulting. 2018.
https://www.liveconsulting.com/news/outsourced-it-vs.-internal-it-department-whats-the-best-choice
 
 
10“Outsourcing IT vs. in-house IT: The pros and cons of each.” GoDaddy. 2017.
https://www.godaddy.com/garage/outsourcing-it-vs-in-house-it-the-pros-and-cons-of-each/
 
 
11“Internal vs external IT support.” Control Esc. 2016.
 
12“How Large Businesses Approach Cybersecurity in 2017: Survey.” Clutch. 2017.
https://clutch.co/it-services/cybersecurity/resources/how-large-businesses-approach-cybersecurity-survey
 
 
13“Quarter of Companies Expect to be breached in the Next Six Months” Balabit. 2018.
https://www.balabit.com/press/new-research-balabit-reveals-quarter-companies-expect-breached-next-six-months
 
 
14“Six Cyber Threats to Really Worry About in 2018.” MIT Technology Review. 2018.
https://www.technologyreview.com/s/609641/six-cyber-threats-to-really-worry-about-in-2018/ 
 
15“ERP Cybersecurity Survey 2017.” ERPScan. 2017.
 
16“Examining the Known Unknowns of Cyber Security.” Balabit. 2018.