PLANNING FOR RETIREMENT WHEN PURCHASING NEW IT EQUIPMENT GENERATES HIGHER RETURNS, BENEFITS FINANCIAL PLANNING
Information Technology (IT) accounts for more than half of all capital spending at most large companies today.1 The majority of those companies typically use IT assets for about four years and then, rather than attempting to get a return on the retired assets, they will sometimes stick them in a closet or pay someone to dispose of them; essentially throwing money away.2
For years companies have been conditioned to think of older IT equipment as a liability that needed to be disposed of in a complicated, heavily regulated manner. This fear of not adhering to environmental rules or inadvertently leaking sensitive date paralyzes some businesses.
Rather than planning for IT equipment retirement and obtaining a return on investment, many businesses view "end-of-life" as a cost to be reduced. Further, many don't fully understand regulatory requirements or how to ensure the security of data contained on retired equipment. Lack of knowledge and fear of lapses in security force these businesses to either do nothing with the equipment, destroy otherwise reusable hard drives, significantly reducing value, or destroy the assets altogether, resulting in a cost instead of return.
This bleak financial scenario doesn't have to be the case for IT assets at end-of-life. PlanITROI, a leader in end-of-life information technology asset management programs since 1991, knows that properly managed retired IT assets represent a significant opportunity for a return. Paul Baum, CEO, PlanITROI, comments, "Planning is at the heart of realizing and maximizing returns on retired IT equipment. A thorough cost/benefit/value analysis at the beginning of the IT asset purchasing process is the best way for businesses to determine the right time to retire an asset for maximum return."
Planning at Purchase Maximizes Value at Retirement
Beginning with the end in mind, PlanITROI developed the Valuation Investment Protection (VIPsm) Program. The VIP Program offers companies a guaranteed minimum value at end-of-life for newly purchased IT equipment. The program can begin as early as the strategic planning stage, where PlanITROI can provide advice and counsel on which IT equipment holds its value best at retirement. This enables clients to factor equipments' end-of-life value into the purchasing decision.
Once a client has decided on the specific IT equipment they intend on purchasing, PlanITROI will write a purchase order for up to 60 months from the initial date of purchase with a guaranteed minimum price at which PlanITROI will buy the equipment back.
At retirement, PlanITROI will collect, audit, sanitize hard drives and process equipment to the client's specific instructions. In the end, to pay for the end-of-life services, PlanITROI will remarket the IT assets. To ensure clients get the maximum return, PlanITROI employs an exclusive revenue sharing program that provides clients a guaranteed minimum value or a pre-determined percent of the sale price, which ever is highest. The simple formula multiplies the number of units by percent revenue share or guaranteed minimum (whichever is higher) less the cost of services the client selects. (Clients ROI = Units Sale Price X Revenue Share (or guaranteed minimum, whichever is higher) - services required by the Client & value added services) The result is the client's net return, delivering in many cases significantly more money per unit than originally calculated.
VIP Benefits Full Lifecycle Planning
Working with PlanITROI through the VIP Program arms companies with knowledge that could potentially save them millions of dollars annually. For example, a Fortune 100 company might be planning to equip its 11,000 member sales force with all new Toshiba TecraŽ M3 S336 Intel Pentium M 1.86 GHz for $1,800 per unit. Through the VIP Program, PlanITROI can tell that company what the Toshiba TecraŽ M3 S336 Intel Pentium M 1.86 GHz notebook computers will be worth in a number of years and even recommend the best time to retire the assets for maximum return.
Honed from experience in the residual valuation business since 1991 for some of the top leasing companies in the world, PlanITROI applies a unique formula to track value trends and predict residual values. The company uses this propriety data on IT residual value trends, as well as type of IT asset, manufacturer, model number, intended use, ruggedness, configuration and length of time the company intends to use it, PlanITROI can tell the company that in three years the minimum buyout price PlanITROI is willing to pay for the equipment will be 12% of its original cost ($216); in four years 8% of its original cost ($144); and in five years 5% of its original cost ($90). Based in these findings, the company now has a retirement schedule with known returns and can plan accordingly with other retirement costs. Once agreed to by the client, PlanITROI would write a purchase order for that guaranteed minimum price to buy back the Toshiba TecraŽ M3 S336. If the company didn't work with PlanITROI through the VIP program, and unwittingly held onto the computers beyond the fifth year, they would essentially be throwing away potential returns.
Orson Wong, consultant, PriceWaterhouseCoopers LLP, comments, "Establishing guaranteed residual value at the beginning of the IT purchasing process can help ensure that the proper amount of depreciation is taken over the life of the asset." This benefit of programs like the VIP program is a quality in which any business, regardless of industry, can find value. Additionally, Wong explained, "Simplifying total cost of ownership calculations may contribute towards enhanced monitoring of profitability through stability of costs attributable to customers, products and/or standards." From this perspective, programs like VIP "assist with long-term cash flow planning, assuming a high utilization of IT assets."
Wong added that this type of program, "Supports a good structure of internal controls, since transactions are pre-approved and end-of-life decisions made at the beginning of the purchasing process frees additional resources at the end of the IT asset's lifecycle." Altogether, he comments, that programs like the VIP program can not only "help companies maximize the value of IT assets at end-of-life, but could potentially benefit a company from an operational perspective as there is an implied level of quality or reliability that correlates with residual value of IT assets."
Planning for IT Retirement Generates Higher Returns
Creative Solutions
The VIP Program can also be adapted to solve more creative challenges. In one example, one of America's top 10 pharmaceutical companies called on PlanITROI to help them plan for an expansion of their field sales force. They needed to equip nearly a 1000 new salespeople with notebook computers now, even though a full upgrade was another year away. PlanITROI helped them identify costs for the program, including the residual value of the new units at the time of the full upgrade.
Using the VIP program, PlanITROI gave the company a purchase order to buy all of the units that will be retiring during the full upgrade. For the units they had purchased for just one year, the company got a PO at market value; for the older units, they got another PO for their real market value. As part of the program, PlanITROI also provided the company with price protection on the estimated residual value. PlanITROI will remarket the retired notebooks and deliver to the client a pre-set percentage of that sale or the VIP Program-specified price, whichever is higher. This guarantees that PlanITROI can deliver the highest value and protects the client from shifting market values.
As a result of using PlanITROI's VIP program, the pharmaceutical company demonstrated the value of long-term cash flow planning, monitoring profitability through stability of costs, and measuring procurement standards.
In conclusion, companies that wish to realize a return on their IT investment, and avoid incurring additional expenses at end of life, must plan the life-cycle of their IT assets. The VIP program is a tool to identify real market values for retired assets, even five years before their end-of-life.
About PlanITROI
PlanITROI, the pioneer in end-of-life information technology asset management programs, helps corporations worldwide address cost, compliance and environmental issues associated with the recovery and disposition of retired IT assets. Headquartered in Denville, N.J., PlanITROI operates a unique model that offers clients data and information security; regulatory and reporting compliance; and revenue rather than expense in dealing with retired IT assets. For more information, visit: www.PlanITROI.com.
1 According to CFO Magazine
2 According to Patricia Adams, principal analyst with Gartner Inc., as quoted in Insurance Networking News
