The end of the calendar year means it is budget and planning time for many small businesses. How should your organization be thinking about its technology spending? Let’s talk about a few important considerations when developing a business technology replacement strategy.
When considering the cost of your organization’s technology it is important to consider equipment’s life cycle and budget for not only the purchase price of the technology but also its lifecycle and support costs.
Every mechanical device has a life cycle. When it is first manufactured and assembled there is a “break in” period when the change of problems or defects being discovered is highest. This is why many manufacturers have a burn-in period for their equipment. Experienced IT departments and consultants typically burn-in new devices before installing them or moving them into production environments for the same reason.
Think of this in the terms of buying a car. If you have ever purchased a new car often the new car has a few kinks or issues that need to be addressed. After the first month or so, the car settles down and generally has few problems. After a couple of hundred thousand miles things start to break o0r wear out on the vehicle. The problems may be gradual at first but eventually, if you keep the car long enough, you begin to spend more on repairs than makes sense.
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 has been met or exceeded. For example, the new server’s drives are filled to capacity before the server has reached its life cycle or the core network switch is just not fast enough to serve all those new workstations. The amount of capacity that we are consuming, whether it’s network speed, hard disk space, or processing speed, is doubling or better every year. 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 and budget is planning for this life cycle and capacity growth. 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 cost.
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 added in.
- 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.
Using this formula you can determine and predict when the replacement of a device is the more cost effective option. This determination of cost effectiveness is the core of a technology replacement strategy. Best practice is to establish a preferred replacement life cycle for every device type. The following suggestions may help you get started by providing some rough guidelines for replacement technology devices:
|Device Type||Suggested Life Cycle|
|Firewalls / UTM Devices||3-4 Years|
|Networking Infrastructure (switches, etc.)||5-6 Years|
|Desktop Computers||42 Months|
|Mobile Devices (Tablets, Laptops)||36 Months|
|File and Infrastructure Servers||60 Months|
|Terminal and Virtual Desktop Servers||36 – 42 Months|
|Wireless Equipment||36 Months|
|Business Phone Systems||5-8 Years|
|Point of Sale Equipment||4-6 Years|
|Printers & MFPs||5 Years|