Fill and Sign the Guidelines Lease Purchase Form

Guidelines for Lease vs. Purchase of Information Technology I. Reasons to Lease A. Help smooth budget spikes B. Facilitate rapid technology deployment C. Facilitate standardization efforts D. Provide an effective disposal strategy for used equipment II. Reasons not to Lease A. Lack of an in-house IT asset management program B. Unacceptable risks of signing a multi-year contract committing to one technology or vendor C. Lack of negotiation and contract management skills D. Inability to strictly adhere to contract length, terms, and conditions E. Lack of a strong architectural plan for technology III. Financial Considerations. Organizations need to outline the costs associated with their current procurement methods and equipment management. These include: A. Acquisition costs B. Asset management costs C. IT support costs D. Disposal costs Note: Using these figures, organizations can calculate the respective costs of leasing or purchasing equipment. IV. Outright purchase is the most common option. A. Can be made with general revenue or other dedicated funds (unless specific restrictions are placed on the funds). B. Information technology hardware is usually classified as a capital budget expenditure, but can also be purchased through general revenue lapsed funding. V. Lease-purchase, or capital leasing, is the second major option. A. A lease-purchase agreement spreads out the terms of payment for equipment. B, At the end of the payment period, the purchaser obtains title to the equipment, but has been able to use the equipment and to spread equipment payments over time to ease the financial burden of making large IT acquisitions. VI. Technology Management Issues A. The increasing rate of technology has led to faster system development, and shorter life cycles B. IT management begins with the decision to acquire hardware or software, and continues through the useful life and final disposition of the item. C. The actual purchase cost of IT is one of the least expensive factors in most total cost of ownership models (TOC). D. Acquisition strategies must still be cost-effective. Consider: 1. The cost of maintaining the system, 2. The availability of staff expertise (for problem solving, development, and management), and 3. The value of the equipment at the end of its useful life cycle. VII. Technology Life Cycle. The following identifies issues to consider at each step of the technology life cycle. A. Acquisition 1. Standards 2. Budget constraints 3. Life cycle 4. Staff time for selecting technology, writing and processing the purchase orders 5. The actual purchase cost of the hardware or software. B. Installation 1. Inventory Costs for receiving and installing the new equipment. 2. Cost and time for disposal of currently owned equipment. C. Training 1. Any IT staff training on new technology represents a cost to the organization. 2. These costs will be similar regardless of whether the technology is leased or purchased. D. IT Staff Costs for Maintenance 1. Asset tracking 2. Life cycle tracking 3. Staff time spent maintaining and upgrading new hardware or software. E. Removal 1. Life cycle . 2. Inventory update 3. Physical disposal and EPA restrictions 4. Software licensing . 5. Data removal 6. Staff time and resources spent a. Prepare items for surplus, b. Showing potential takers the surplus available, and c. Arranging for disposal if the surplus equipment is not taken. VIII. Business Value -- These questions examine the need for new equipment for end users, and the organization’s ability to manage a leasing contract. A. Does your organization have a formal replacement plan? If so, leasing is feasible. If replacement is done on an as-needed basis, the controls may be lacking to manage a lease. B. Does your organization currently lease any type of equipment? If so, this can provide useful expertise at identifying the usefulness, benefits, and drawbacks of leasing in your organization. C. Does your organization have a business need to replace personal computers more often than is currently done? IX. Equipment Life Cycle A. What is the average age of personal computers before they are replaced in your organization? B. How long are servers used? C. Is data center software upgraded on a regular basis? X. Asset Management A. Does your organization have IT tracking mechanisms in place? B. Does your organization have a problem with lost or stolen IT equipment? If so, is this a small, medium, or large problem? XI. Contract Management A. Does your organization have the time to select a vendor? B Does your organization have the time to develop a good leasing contract? C. Does your organization have the time and staff to manage the contract throughout the life cycle of the equipment? D. What is the stability of the primary source of funding for your IT equipment? XII. Purchasing may be the preferred option if: A. PC equipment is to be used for longer than three years. B. The organization does not have staff and systems to track assets and manage the lease. C. Funding is uncertain so that the full term of the lease can not be met. XIII. Advantages of Purchasing A. Wide familiarity and acceptance with purchasing requirements, skills, and techniques. B. Responsibilities and management systems for purchased equipment already exist in organizations. C. Purchasing avoids the complexities involved with managing leasing agreements. D. Ability to keep equipment for as long as it is needed and to modify it as needed. XIV. Disadvantages of Purchasing A. May hinder your organization’s ability to take advantage of technological advances when the technology becomes avail able. B. Ties your agency to expensive upgrades of equipment that may become obsolete quickly and thus will be unable to meet agency needs. C. Using different levels of equipment and software may require more IT staff time to be spent on repairs than on projects. D. Equipment disposal can be time consuming and costly. E. Up front costs may have adverse impact on organization’s budgets. F. Capital intensive expenditures for IT with decreasing life cycles.