By Jason Skidmore, Chief Commercial Officer at 3 Step IT
Gartner, Spiceworks and others, forecast that IT spending will continue to grow. Hardware is around a third of a company’s overall IT budget, and PCs and laptops are about a third of that. While they are an obvious target to look for ways to cut costs or find better value, it is important to understand hardware, software and support costs before trying to save money. Surprisingly, the various other costs dwarf the hardware cost itself.
Total Cost of Ownership
The Total Cost of Ownership (TCO) is a way to work out how much your equipment will cost over its entire lifetime. It tries to calculate the complete cost of using a technology; creating a more complete picture, which includes hardware, software, maintenance and end user support. This costing discipline should help decide how long to keep equipment and the best time to replace it.
Only about 20% of the TCO for PCs and laptops lies in its purchase price. The rest comes from software, support and management. These costs rise as the equipment ages and its performance or reliability decreases.
Extending the life of IT devices reduces its daily depreciation cost. A decision to delay replacement will conserve cash in the short term, but a focus on hardware costs only looks at a fifth of the overall cost picture, and optimising this fifth, it turns out, is a false economy. The cost of support rises with older IT equipment, as it generally needs more attention. There is a vicious circle at work here: as IT support costs rise, the end user suffers, and the IT service level drops. As an IT department spends more on user support, it has less to spend on innovation and over time, provides less value to the organisation.
Hidden Costs of Ageing IT
Refreshing PCs every three years reduces the TCO by 24% compared to hanging onto a single PC for twice as long. This is a result of maintenance and support costs increasing year-on-year when devices are used for longer, rising by 12.9% between the third and sixth years of use.
Strangely, TCO calculations do not consider employee productivity. When their device is not working properly, the user typically switches on and off before asking a colleague, and then calling the help desk. Every device failure inconveniences the user to some degree, and hits their productivity, especially when working time is lost. However much the rising cost of support features in the TCO calculation, the cost of user inconvenience has a multiplying effect.
As an IT department spends more on user support, it has less to spend on innovation and over time, provides less value to the organisation.
The TCO methodology also ignores opportunity costs. Older technology, with older software may not support advances like cloud computing and big data so effectively. Older devices with Windows 7 will compound security risks when Microsoft support stops in 2020. It can be as simple as the drive for increased mobility: as technology improves, so does battery life. It makes a real, practical difference to employees’ ability to work flexibly. Modern devices will help IT departments modernise, innovate and deliver digital transformation.
Where do companies go from here?
Many organisations do not understand the TCO message. In an international survey that 3 Step IT commissioned earlier this year, 24% of respondents said that they replace their IT devices only when they fail, so they get the best value from their investment by using it for as long as possible. In this discipline, IT support costs come out of a separate budget and IT service levels are not a consideration.
There are challenges too for organisations with a refresh plan. It is easy to plan a device refresh cycle in three years’ time, but harder to stick to those plans when the time comes. In our survey, 36% of organisations had their refresh plans blown off course by a budget challenge, and 35% blamed ‘other priorities’. With all the hidden costs of ageing devices, there is clearly a real benefit in improving the lifecycle management discipline.
Plan for a virtuous cycle
Typically quoted optimum life cycles are around 2 years for smartphones, 3 years for laptops and 4 years for PCs. With mobile devices, everyday wear and tear introduces reliability issues, which shorten the optimal lifespan.
In turn, a regular refresh brings a budget challenge: replacing hundreds of devices regularly needs budget and cash planning. In our survey, 66% of respondents said they purchased their IT equipment, of the rest, most used a mixture of purchase and leasing, and one third used leasing only. Interestingly, 93% of organisations that plan a regular device refresh also use leasing. We can speculate what is behind this correlation: regular rental payments make it easy to plan budgets, and avoid cash shocks when acquiring new equipment. Those who object to leasing because it is not flexible will find it is a lot more flexible than outright purchase.
Lifecycle management success brings a virtuous cycle in its wake: modern equipment works reliably, so user satisfaction with IT rises and support costs drop. When support costs fall, IT departments can focus on delivering innovation, so the organisation gets more from its IT investment. Users with modern IT tend to feel more valued, which can ease staff retention pressures. Replacing IT while it still works and has a value can also lead to it being re-used, which helps make IT more sustainable.
With funding choices only part of the equation, IT lifecycle management specialists can help implement the refresh policy and automate many routine IT support activities. Whatever route you choose, the IT lifecycle management discipline repays effective execution.