New "green" initiatives are reinventing the world of buying and leasing technology, primarily because technology that nears the end of its useful life must be disposed with-and there is a burgeoning cost for that.

On the surface, this would seem to favor leasing instead of buying equipment, since if you never actually take title to the equipment, you will not be responsible for disposing of it. However, there are still strong arguments for buying, too. It all comes down to the financial and IT arguments for "buy" versus "lease" that take place within an organization.

This article focuses on the "buy" versus "lease" decision process, factoring in how incoming "green" initiatives are likely to impact it.

Do Green initiatives portend an increase in leasing?

The disposal of used computer equipment and cell phones is likely to get front and center attention as "green" thinking becomes more mainstream. It is already a burgeoning problem in the United States.

Just what does one do with old technology? Many companies try to liquidate it or give it away. Some "downgrade" its functions into lesser roles within the business to at least keep it working until it fails altogether. Some companies, not finding takers, simply throw technology away, and it ends up in a landfill.

Eventually, all technology becomes an environmental hazard.  An older model CRT can contain up to four pounds of lead. The PC as a whole contains significant levels of beryllium, barium, chromium, cadmium, lead and mercury. These elements poison the soil and water around landfill areas.

It is small wonder that many localities ban dumping and pay other areas to take the technology trash. Recyclers "take the trash" to countries like India, China and Pakistan, which is cheaper than harvesting out components for reuse. Sadly, the toxic soil and water levels that technology waste creates contribute to high levels of tuberculosis, infant mortality and birth defects.

All of this is leading to legislation that is likely to make businesses "pay" for technology disposal at higher rates-or face severe penalties and potentially adverse publicity. One solution, of course, is to simply lease the equipment so you're not responsible in the end for finally disposing of it. However, leasing companies as well are likely to impose higher fees for what is shaping up to be escalating disposal costs and fees.

The Financial and IT Aspects of Lease versus Buy

With green initiatives looming, more businesses are opting to lease, and for several reasons:

 

• Leasing is an easy way to "trade out" equipment, and to ensure that your technology stays up to date. If your equipment procurement direction is decidedly with a near-single source vendor, there are often vendor-provided incentives for signing a lease within the vendor's purview and influence. Most companies prefer the autonomy of going with an independent third-party lessor that allows a broad mix of hardware, and sometimes software.

 

• Lease dollars can be capitalized and "smoothed" into predictable monthly installments in the IT budget. When arguing in budget meetings, IT executives often have an easier time championing resources when they can show a constant monthly expense amortized over a 12-month to 36-month period. The investment begins to look like a fixed expense to the business, like lights and heating. Budget survivability is increased when projects no longer present themselves as discretionary.

 

• It also costs next to nothing to enter into a lease and to begin deploying the equipment right away. This is not true with a purchase, where a total amount or a sizable downpayment must be tendered before equipment is delivered. From a financial standpoint, IT is able to introduce new technology through leasing without disrupting cash flows and budgets.

 

• In most cases, the lessor also bears the costs of equipment maintenance and insurance. These are headaches that most IT managers (and many CFOs) will gladly forgo.

 

• If you need to make a sudden leap because of operational or competitive pressures into a new technology, you are able to do it through a vendor that can simply modify your lease agreement and get you going right away. Most leasing vendors have the flexibility to work out cash flows and payments, so budgetary traumas are minimized.

 

• Lastly, you don't have the burden of trying to find a "home" for old equipment when it reaches the end of its useful life. This was once a minor problem, because non-profits and others were glad to receive the equipment-but with new green initiatives, even non-profits do not want to be at the "end of the line" when the green fees (and penalties) kick in.

 

So Why Buy?

Despite the flexibility and cash flow attractiveness of leasing, there are still times when companies want to purchase technology outright-and there is a plethora of used equipment vendors who do very well in this business.

The market for refurbished equipment occupies several key niches:

 

• First is the area of very small businesses that want total control over their equipment, and the ability to either self-maintain or call in maintenance on demand when there is an equipment issue. These organizations aim for refurbished equipment that has been fully certified and warrantied by resellers, which gives them a modicum of insurance for their purchases. Many of these companies are running old and unsupported versions of software, and are comfortable, especially when they are already familiar with a piece of equipment, and know that it can run reliably for years.

 

• Larger enterprises, as well, have older equipment and look for purchasing refurbished equipment in times of unexpected equipment replacements and with the full knowledge that they can obtain reliable and inexpensive gear for areas of the infrastructure that are not compromised by it.

 

• Especially if your staff is very familiar with certain types of equipment, it is less expensive to buy quality used equipment than to invest in a new piece of equipment. The flexibility of leasing is paid for in amortized interest over the span of the lease-and there are penalty fees if you make a decision to deactivate a lease. Furthermore, you are obligated to continue to make lease payments even if a change of direction means that you will no longer use the equipment that you leased. In all of these cases, a "buy" decision is a very good option.

 

The Budget Side of "Lease" versus "Buy"

Computer equipment leases and purchases all have financial and IT considerations.

On the IT side, it is important to match up leasing timetables with corporate timetables for equipment use. This protects you from making lease payments for decommissioned equipment. If asset management and equipment usage timetables can work well with leasing, IT then has the flexibility on the budget side to "amortize" the lease over a term of even monthly payments-with a net result of lower payments over a longer period of time in exchange for an overall higher price for the equipment than an outright purchase would constitute.

If the equipment is purchased outright, it becomes an immediate operational expense. This may be a challenge for the budget, but many organizations decide to go this way when they know that revenues will be strong in a given year.

Buying directly has its value. You can control your own technology and timetables-and there are no elements of vendor or lease management to track so that leases don't automatically self-renew because someone wasn't keeping an eye on them.

Closing Remarks

Buying versus leasing technology has been an open question for many years-on both the IT and the financial sides. It will continue to be so-although today's incoming "green" initiatives-and the necessity of managing those risks-may make leasing more attractive in the future.

Key success factors are implementing a strong asset management system, linking the IT strategic and equipment deployment plans with leases so they coincide, working hand in hand with finance to produce the most favorable cost management scenario in the budget-and knowing when out rightly buying technology is truly the best option.

 

NaSPA member Mary E. Shacklett is President of Transworld Data. She is listed in Who's Who Worldwide and in Who's Who in the Computer Industry.

 

 

Forward this page to a friend

Your Email: *

Your Name: *

Send To: *

Enter multiple addresses on separate lines or separate them with commas.

Message Subject: (Your Name) has forwarded a page to you from NaSPA.com

Message Body: (Your Name) thought you would like to see this page from the NaSPA web site.

Your Personal Message: *

Your vote:

1

2

3

4

5

No votes yet