Welcome to syn*det"ech

G’day everyone! It is time to break the ice. As promised, my first article is going to be about Asset leasing vs. Asset buying. I have put together 10 points which in my opinion highlight things one should look for when making a decision to acquire/lease assets. The bottom line – there’s no perfect scenario. There are many pro’s and many con’s for either buying or leasing. All depends on size, maturity and agility of your organisation. Your industry may also dictate a way in which you’ll treat your assets. I do not claim to know everything but having done this for many years I have a thing or two to share and desire this to be an open discussion with your comments and suggestions.  Through this we can build a Best Practice to populate the syn*det”ech wiki.  The purpose of my blog is to share my personal opinion and experience, and to challenge a community to offer alternative viewpoints.  So here we go:

1. Talk to your customer. It is very important to understand what your Business customer wants. In my experience, Technology often makes decisions assuming their business customer would support them. The truth is Business and Technology has different performance targets and quite often the two don’t sing from the same bible. It is paramount that any decision around asset treatment be agreed by Business.
2. Not all size fits all. Do your market research, but don’t expect that someone else’s experience will address needs of your business. It is good to know world best practice and pick the practical bits which may suit your situation. If a trusted Technology Consulting firm suggests you Lease, it doesn’t mean you have to Lease. Media is known for generalisation and sensationalism. Don’t follow any trends unless they make a sound business sense.
3. Prepare a TCO for the fleet of assets, preferably based on the fleet which you are intending to replace / refresh. Remember to include all hidden costs (i.e. set up costs, contracting costs, management costs, up-front establishing costs, HW bundling costs etc.). I found that people are afraid of TCO as they don’t understand where to start with it. TCO must be demystified and converted into a simple tool.
4. Reveal and remove any cost duplications. Quite often, HW acquisition comes with a 12-36mths warranty (parts and/or labour). When contracting a 3d party for HW support make sure parts and/or labour is excluded to avoid duplication.
5. Consider the cost of cash/credit/finance in the light of the recent global credit crisis. Is your credit rating good enough to guarantee a favourable credit offer? Or do you have enough cash to afford buying Assets? It may be that your only option in the current economic climate is to lease?
6. Don’t underestimate the value of the “depreciation holiday” of owned assets. In my practice, we had a fleet of branch PC’s which were depreciated over 5 year period. However, PC’s were still in good working order after initial 5 years, so Business customer decided to extend their life for another few years to extract extra value and come up with cash for the refresh acquisition. We had 6000 machines which cost BU around a million in depreciation costs each year. Being able to extend the useful life for 3 more years have given business 3m of “depreciation holiday”.  Our machines were not heavily used and defied the industry standard of a “bathtub curve” where most of HW assets start to fail en mass after their depreciated life. This also allowed Business extra time to monitor the market for the purpose of introducing thin client technology, which otherwise would be very immature to consider.
7. Are you good at managing your own assets? Do you know how many units of assets you have? Do you have dynamic means of managing any asset movement? Lack of asset visibility and asset movement can add cost to your leasing program as you may be paying lease cost for something which you forgot to return back to leasor. I see this as a downside of leasing.
8. Are you in fast pace technology environment? Do your assets need to stay up-to-date with the market changes? If so, perhaps you should seriously consider leasing. There’s no upfront cost of cash, and there’s an opportunity to renew your fleet or continuously upgrade your sw. However, to take advantage of frequent refresh programs, you must have full visibility of your assets, and have a very tight asset movement control.
9. Is your organisation agile? Large organisations do not have much flexibility and often spend huge amount of money to affect refresh (physical replacement of HW assets).  With regards to SW upgrades, again, the large the organisation, the costlier it is to keep the ongoing upgrades (cost of de-customisation, development,  re-customisation, testing and release). I also think that the subject of software asset management warrants a separate blog. This means that you may be attracted to the idea of a continuously upgrading your assets, however the circumstances of your organisation may prevent you from exercising frequent upgrades. You’ll pay for an option which you may not be able to benefit from. Is it worth your headache and cash?
10. The last point for today is to consider taxation implications of leasing vs. buying. Leasing costs may be tax deductible, thus making leasing proposition more financially feasible than buying. However, lease cycles can be much shorter forcing you to spend more in the long run. Again, I’d like to refer you to my previous point re TCO. Compare how many leasing cycles (and associated costs) may fit into a 6-10 year asset roadmap as opposed to the number of HW refreshes you may have in the same period. The TCO should point you to a winning financial solution.

I look forward to hearing your comments and opinions.
Cheers for now