To maximize your investment in cutting-edge hardware, aim to invest within six months of its release — that approach can help keep it viable, says Peter Mason, head of the U.S. Bank Technology Finance Group.
Best practices for optimizing the tech lifecycle
November 17, 2022
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.
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.
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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 even 2
Cost-benefit analysis tips 3
- 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.
A three-year refresh cycle sets your company up for the best of both worlds: manageable costs and current technology.
If you commit to a three-year upgrade cycle for desktops and laptops, consider leasing. Leasing programs offer cost certainty and consistency. 6
“Once you factor in IT support costs and out-of-warranty repair bills, it’s more affordable to refresh your laptops and desktops every three years rather than wait longer,” Iacobucci says.
These costs account for server support, unplanned downtime and incompatibilities with new applications. Annual cost per server: 7
- Third year: $5,200
- Fifth year: $10,400
- Seventh year: $17,000
For other kinds of technology, consider these benchmarks for replacement: 8
- Laptop: 3 years
- Desktop: 5 years max
- Tablets: 4 years
- Smartphones: 2-4 years
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.
External IT
|
Pros |
Cons |
|---|---|
|
Cost:
|
Time:
|
|
Knowledge:
|
Integration:
|
Pros
Cons
Cost:
- Less expensive than paying, training and certifying an internal professional
- Could offer benefits like bulk purchasing for software
Time:
- Potential delays in support responses
Knowledge:
- Access to a wider area of tech support expertise 11
- Capable of advising companies on security and new IT solutions
Integration:
- Need time to study your processes and network
- Have to review your system after updates or new applications are introduced
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.
|
|
Lease |
Buy |
|---|---|---|
|
Purchase-ownership advantage |
Up-to-date devices with support |
Straightforward purchasing process |
|
Control over |
Expenditure and cash flow |
Technology used |
|
Cost |
Lower upfront expenditures |
Potential long-term savings (for items that don’t fit the three-year leasing strategy) |
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.
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