Re: [SAGE] RE: Lease v. Buy

[Richard Chycoski <rac@cisco.com>]

You 'do the math' for the CFO.

(CFOs like numbers, for some reason. :-)

Take into account maintenance costs, upgrade costs, overhead due to 
supporting multiple OSes (that usually comes in person/hours), and 
downtime costs (due to old machines that fail more often).

There can be savings found in in new machines that have long warranty 
periods (at a Canadian university we used to lease some of our gear for 
three years with a three year warranty - no service costs!).

You may find value in doing a more costly upgrade to the servers at the 
centre of your business to reduce downtime, since central servers affect 
more people when they're down, extra hardening can bring overall savings.

It depends on how your business runs - how long can you go without 
'server x' before it starts costing the business money? How much does it 
cost you when 'employee y' has a dead desktop?

These questions apply regardless of the size of the company, but 
economic realities are different for different businesses, so the 
answers are not necessarily the same at a 'mom-and-pop shop' as they are 
in a mulitnational organisation with 10,000+ employees.

It's important to come up with a game plan for any upgrades, and also a 
schedule of when you will need to spend the money. You may be able to 
convince your CFO to make more money available if you have a good plan 
that extends the payments over several months or years, with milestones 
to be met to show that the money was well spent along the way. You may 
need to compromise on the lower priority systems to get enough funding 
to keep your higher priority systems stable. Also, look for creative 
ways to reuse old gear - if that three (or more) year old server machine 
can be reused as a desktop to replace an even older machine that someone 
is still using, you may be able to delay the purchase of a new desktop 
for a while. (This does not always work of course - some server-class 
machines make lousy desktops. :-)

Bringing the possiblity of leasing into play can extend the time over 
which you need the funds, which may make the CFO happy. You need to 
understand the math behind leasing - it's true that it's almost always 
more expensive than outright purchase, but it can help cash flow since 
you don't have to come up with the funds all at once, and some creative 
negotiations of the length of the lease and buy-out cost at the end can 
sometimes actually save you money compared to purchase. The tax write 
off on leases can also save you money up front, since the entire lease 
payment becomes an expense, whereas when you purchase you can only write 
off the depreciation (which is usually smaller than your lease payments).

There are other creative lease arrangements - you can buy equipment from 
one vendor, and have a separate leasing company execute the lease, or 
you can buy and lease from the same vendor. Your CFO may be able to help 
you with a selection of options, and it may take the both of you 
together to negotiate an appropriate lease, if you choose to go that route.

*Everything* is a negotiation! (:-)

- Richard


Gilbert Wilson wrote:
> Michael (and others),
> 
> Since your with Motorola, and I assume leasing hundreds of systems (at
> least), the economies of scale certainly way in your favor.
> 
> But lets say you suddenly became an such an idealist that you left your
> corporate job, and became the sys admin for a small non-profit of 15
> employees working to stop the spread of WMD.  You now have a
> stitched-together computer infrastructure of Windows 9x - XP systems with no
> rhyme-or-reason, in addition, you have two servers to support employee
> activities.  Do you choose to start fresh with leased equipment (a new start
> all-at-once), or do you attempt to cobble things together through
> purchase/maintenance over a four-five year period?  Why would you choose one
> over the other?  In making your decision lets say you have somewhere between
> 4-6k a year at your command, and the CFO wants a depreciation schedule.
> 
> Thanks again!
> 
> Gil
> 
> -----Original Message-----
> From: owner-sage-members@usenix.org [mailto:owner-sage-members@usenix.org]
> On Behalf Of Brown Michael-EMB021
> Sent: Monday, May 09, 2005 11:03 AM
> To: sage-members@sage.org
> Subject: [SAGE] RE: Lease v. Buy
> 
> 
>>-----Original Message-----
>>From:  Behalf Of Gilbert Wilson
>> 
>>I'm curious as to what advice people have on leasing computer equipment
> 
> verses buying it.  Specifically, good v. >bad v. ugly?  What do people have
> to say on this issue?
> 
> We lease at my site.  We found its cheaper to do so.  It has other advantage
> of being a way to ensure 'technology refresh', that we don't have systems
> still being used with outdated OSs and hardware because they were purchased.
> When systems are going off lease, we get replacement systems that many times
> have new, more reliable hardware, and newer OSs.  (we many use Windows-based
> systems.  Great way to ensure we still don't have NT4 systems still being
> used. :) )
> 
> Most of our leases are for 3 years (servers, workstations), laptops are now
> 2 1/2 years.
> 
> Michael Brown
> Motorola, Inc
> SAGE member