Lease versus Purchase

1
Leasing

• Lease versus Purchase
• Department of Information Resources
• TSABAA 29th Annual Summer Conference

2
Total IR Expenses
3
Computer Hardware Trends
4
PCs Purchased

• State agencies purchased 65,000 PCs in the last
  three years
• This does not include Universities

5
Cost of Cascading

• Throw away - 14,105,000
• Sell to Remarketer - 7,735,000
• Sell to Employee - 17,680,000
• Donate - 22,360,000
• Cascade - 25,805,000

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Purpose

• The General Appropriations Act of the 75th
  Legislature states that the Department of
  Information Resources shall conduct a study of
  the issue of lease versus purchase of information
  technologies.

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The Difference

• Outsourcing
• Leasing

8
Issues

• The rate of technology change is increasing
  
• Organizations must find new ways to accommodate
  technological change

9
Issues

• The decision to lease or purchase IT equipment
  must be made by
• Examining the IT management processes
• at the agency
• Determining agency business needs
• regarding IT
• Conducting a cost-benefit analysis of the leasing
  and purchasing alternatives

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Reasons to lease

• Help smooth budget spikes
• Facilitate rapid technology deployment
• Facilitate standardization efforts
• Provide an effective disposal strategy for used
  equipment

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Reasons not to lease

• Lack of an in-house IT asset management
  program
• Strong technology architecture plan not in
  place
• Lack of negotiation and contract management
  skills

12
IT Total Cost of
Ownership
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Financial Considerations

• Acquisition costs
• Asset management costs
• IT support costs
• Disposal costs

14
Financial
Considerations

• Emphasis on client/server technology
• Faster system development
• Shorter life-cycles

15
Alternatives for IT
Acquisition

• Outright purchase
• Lease-purchase (TPFA)
• True lease or operating lease

16
Purchasing

• Purchasing may be preferred if
• PC equipment is to be used longer then three
  years
• The agency or university does not have staff and
  systems to track assets and manage the lease
• A technology architecture is not in place
• Funding is uncertain (terms of lease)

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Leasing (True Lease)

• Leasing may be preferred if
• Technology replacement according to industry life
  cycle is needed
• Business need for rapid technology change
• Business need for quick adoption of new
  technologies
• Use operating versus capital funds

18
Leasing References

• Cost Analysis using Present Value
• Sample Vendor Selection Checklist
• Sample Lease Contract Negotiations
• Checklist
• Leasing Specific Types of Equipment
• Resources

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Vendor Selection

• Vendor Selection Team
• Business Culture
• References
• Qualifications
• Flexibility
• Vendor selection should not
• be based upon cost alone!

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Contract Negotiations

• Select your Team
• Design a contract to fit your needs
• Details, Details, Details
• Provisions
• Beware of pitfalls
• If it is not in writing,
• it is not in the contract!

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Managing a Lease Contract

• Assign staff to manage the contract
• Keep track of your IT equipment
• Project end of lease alternatives
• Contracts end Be prepared

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Bottom Line

• Cost savings from a true lease will not appear
  from simply comparing the price of the lease to
  the price of the equipment
• Leasing can be a cost-effective acquisition
  alternative if done correctly

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Internet Address

• Lease vs. Purchase
• Guidelines for Lease vs. Purchase
• of Information Technologies
• Texas Department of Information Resources
• May 1998
• http//www.dir.state.tx.us/oversight/lvp