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John Callies - General Manager of IBM Global Financing explains why many Public Sector companies are choosing to finance their IT investments and outlines the benefits that financing can bring to these organisations.
'IT growth is back. Given the ability of technology to enhance communities, improve delivery of government services, and control costs, this is good news. However, growth places its own pressures on government IT executives, who must find the best way to acquire and manage technology. As in the private sector, many local government CFOs and IT executives find that financing technology, as opposed to purchasing it with cash in full, helps them reduce costs, quickly respond to market demands, simplify budgeting and plan for upgrades and asset disposition.
Financing can simplify how you acquire and pay for IT – an essential benefit given public sector accounting constraints. Financing can structure a payment plan that encompasses the total cost of ownership – including hardware, software, services, maintenance, upgrades, training and business continuity/disaster recovery - in fixed, predictable quarterly fees spread over the duration of the project instead of requiring an upfront sum.
Return on Investment
Because so much of the cost of IT projects is typically burdened early in the project lifecycle, current payback models place tremendous pressure on the IT and CFO staff to show Return On Investment performance over a very short period rather than over the lifecycle of the system. It also results in short-term cost-sensitivity that can lead to the acquisition and deployment of less than ideal systems. A longer-term financing strategy that allows the costs and the benefits of the system to be spread over the life of the system can reduce costs, result in a better solution and better align the benefits of the IT solution with the costs.
Financing can also provide the flexibility to support peaks and troughs in demand, such as when you’re financing an e-government application with an e-commerce component like registration and payment of licensing fees. It may experience spikes or dips in transaction volumes and require varying IT capacity as a result. A flexible financing model allows users to pay only for the capacity being used and avoid time-consuming renegotiations on extra equipment.
IT financing organisations work closely with independent software vendors to ensure that government IT executives have complete project financing alternatives to long-term debt instruments or multi-year capital budgets. This helps them finance critical IT projects without affecting bond ratings and enabling the complete costs and benefits of the system to be spread over its full lifecycle.
IT Investment Planning
A critical part of this service is to assist IT planners in estimating the life of an IT project, accurately valuing the project over its complete lifecycle and factoring in hardware, software, maintenance, recurring services, capacity and disaster recovery/business continuity upgrades over the life of the project to get the greatest long-term benefit. Assisting IT planners in applying best practices to estimating a reasonable Return On Investment payback period and implementing measurement systems to accurately document the sources and performance of these payback components is also provided.
Asset Management and Diposal
One of the most important factors to consider is asset management, including managing technology obsolescence. Financing enables local governments to benefit from technology innovation while protecting against equipment obsolescence. One local authority, for example, turned to an IT financing solution to remarket PCs that were obsolete for its purposes. It used the proceeds to finance replacement equipment – choosing a 36-month leasing option that would enable them to continue to take advantage of technology advances.
Hardware disposal is an especially important concern for local government. Proper disposal is a critical consideration involving both constituent privacy and environmental perspectives. An experienced technology lessor that provides asset disposal and abides by all local, country and European laws – providing a certificate of destruction – is the optimal partner. When analysing funding strategies for IT acquisitions, the benefits of financing or leasing often outweigh the risks of paying in full with available capital resources. The costs of owning technology can add up quickly, and savings and risk reduction realised through leasing are often substantial.' |
