In the initial procurement phase of IT Asset Management, a pivotal question often arises: should the organization opt for outright purchasing or leasing when acquiring IT assets? This decision carries significant weight, as it directly affects the organization’s cash flow, financial reporting, operational challenges, and long-term business objectives.

To guide this decision, it is helpful to begin with a comparative overview of outright purchase and leasing options. Below is a summary table contrasting these two approaches, which serves as a starting point when considering the procurement of IT assets.

The decision to purchase or lease IT assets should not be made in isolation. It is crucial to consult relevant stakeholders within the organization to ensure a comprehensive analysis of all factors involved. It is recommended to assemble a team comprising representatives from the following key stakeholders:

• Finance Team
• Procurement Team
• IT Asset Management (Owner)
• Legal Team
• Board of Directors
• Management Team (Sponsor)
• Operations and Support Team (e.g., Service Desk, Field Service Support, External Outsourced Vendors)

Additional stakeholders may be included as appropriate for your organization’s structure and decision-making process.

Once the relevant stakeholders are engaged, the next step is to conduct a detailed financial analysis, comparing the cash flow impacts of leasing and outright purchasing. This exercise will provide a clearer financial picture and help inform the final decision.

It is advisable to consult with the Finance Team regarding their preferred methods for conducting this analysis. Below are suggested steps for calculating and comparing the financial impacts:

1. Economic Inputs: Consider variables such as the annual inflation rate, discount rate (often tied to volume or bulk purchases), and applicable tax rates (including any available tax rebates, which may vary by country).
2. Lease Inputs: Assess factors such as the lease period (typically between 36 and 60 months), lease rate, lease payments, and associated maintenance costs.
3. Procurement Inputs: Determine the purchase price (it is advisable to establish a corporate fixed price via a tendering process), and include warranty and support provisions (such as next-business-day on-site resolution). Ensure that these align with the hardware lifecycle to cover the full usage period.
4. Cash Flow Calculation: Calculate the cash flows associated with both leasing and outright purchasing.
5. Net Present Value (NPV) Analysis: Perform an NPV analysis for both options. The option with the higher NPV represents the better financial choice.

While financial analysis is a critical aspect of the decision-making process, it is not the only consideration. The organization must also evaluate business needs, operational challenges, and support requirements. Below are additional factors to consider:

• Type of Asset and Lifecycle: Different IT assets have varying expected lifespans, which should be aligned with best practices and organizational policies. For instance, laptops and desktops typically have a usage period of 36 months, while servers, routers, switches, and network appliances may last up to 60 months.
• Depreciation: For assets purchased outright, the depreciation schedule should match the asset’s expected lifespan.
• Resale Value: The resale value of assets at the end of their lifecycle can be optimized through upfront negotiations with secondhand resellers or leasing companies to facilitate asset disposal after the usage period ends.
• Capital Availability and Business Financials: Outright purchases require significant capital outlay. From a business perspective, maintaining adequate cash flow is essential to ensure the organization’s continued operations.

After a thorough review of both financial and operational factors, the organization should be well-positioned to make an informed decision regarding whether to lease or purchase IT assets. Regardless of the choice, the selected option must align with the organization’s overall business objectives and financial strategy. Ensuring that the decision is the “right fit” for the organization will contribute to the effective management of IT assets and support long-term success.

For more information on IT Asset Management – Outright Purchase and Leasing. Reach out to Cybiant’s consultants by dropping a quick e-mail at info@cybiant.com to us.

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