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. 

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.

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.

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.

Internal IT

Pros

Cons

Immediate support:

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

Cost:

  • Can be a more expensive option when considering salary, benefits, equipment, certifications and training for a full-time IT position

Familiarity:

  • Familiar with your network, systems and processes
  • Physically closer to employees and might recognize problems by proximity

Knowledge: 

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

Pros

Cons

Immediate support:

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

Cost:

  • Can be a more expensive option when considering salary, benefits, equipment, certifications and training for a full-time IT position

Familiarity:

  • Familiar with your network, systems and processes
  • Physically closer to employees and might recognize problems by proximity

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

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

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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Sources

 

1. “Understanding Technology Costs.” Network Alliance.

https://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


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


8. How Long Will Your Tech Devices 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/

 

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.

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