In love With the Latest Technology? Consider This Before a Purchase…

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Critical considerations before making an IT purchase

Amazing new technologies surface every day. While technology marketers do a whiz-bang job at selling fancy features, don’t be too quickly enamored or make decisions in haste. Among many responsibilities, the CFO and executive management team must be a vigilant watchdog over the financial health of the company.

A critical component usually entails approving and prioritizing IT purchases with respect to budgets and cash flow.  Since these purchases tend to increase with company size and activity, they can have a big impact on short term cash flow or profitability, and may commit a sizeable amount of the company’s capital resources, or require the company to extend credit for these purchases. Therefore, it’s important to fully evaluate a number of aspects before committing to a major technology spend.

Understand what is driving the need. 

The IT team has probably given careful consideration to the purchase proposal and internal needs.  However, the CFO’s office and the user groups of the new technology should independently vet the defined needs and the cost-benefit.  Oftentimes, purchase requests are made in response to pressure from other departments, or as a hasty reaction to correct or manage a specific event, such as a security breach.  In the latter case, you should carefully assess the situation to determine if it could have been a statistical anomaly, or consider the risk and impact of a recurrence. Either way, a decision should not be made until the emotional reaction has subsided.

Timing is everything.

Patience really is a virtue. In some instances, pushing back the decision of the IT purchase allows more time for the technology need to be confirmed, as well as to explore different options. It may also result in better vendor pricing, or generate alternatives that are better suited to the company. Also, don’t forget that prices are almost always more negotiable at year-end or quarter-end.  Delaying a purchase by just a few weeks may yield a considerable discount from the vendor or one of their competitors.

Consider the alternatives.

Has the IT team done their due diligence and given equal consideration to other solutions?  Often, a less expensive, or even free, solution may exist that wasn’t considered because it was less than perfect. Perhaps it was incompatible within the technology framework or lacked certain features.  As a company leader, it is reasonable to request the pros and cons of alternate solutions.  While some options may present drawbacks, such as missing features, brand leadership, performance or support, each area should be re-examined and validated by impact to the organization—not just personal preference.  Information technologists and engineers have naturally developed strong beliefs and biases after working for years in the industry.  It is okay to challenge opinions and recommendations of technology leadership when capital is involved.

Five alternatives to discuss as a team:

  1. Newcomer/Runner up:  In a fast-moving, technology world, disruptive products constantly up-end the industry leader, so it’s important to look at relative newcomers as well as the second best product.
  2. Open source:  An open source or community-based option may be an excellent alternative to a traditional equipment purchase.  This concept exists for products in which C-Level staff may not be aware. For example, routers, SAN or NAS storage, load balancers and firewalls all have open source options that can be loaded on rack-mounted servers.  While it may require more knowledge and time to build a DIY solution, many large companies like Google and Facebook build their own servers to squeeze out more performance at a lower cost.
  3. Consider Process Change: During a recent engagement, Bridgepoint recommended a process change for our client as an alternative to purchasing software to track user activity.  This included restricting access to a privileged user role that was being misused to access certain confidential documents.  In this scenario, the need did not justify the  $10,000 software investment.
  4. Try Before You Buy:  If alternate products have been ruled out and process improvement will not solve the need, do not hesitate to ask the vendor for a trial period to validate your choice.  This approach also serves as insurance should other choices surface prior to the expiration of the trial.  And in rare cases, the IT department may be so inundated with work they are unable to install the equipment or software.  The option to return the equipment after three to six months without a major penalty may be a good option. In addition, testing the product in your environment allows for feature and performance validation under load.  Many products have a good solution for a limited range but scaling presents a problem.
  5. Leasing:  Many third-party articles cover the advantages and disadvantages of leasing vs. outright purchase.  One obvious benefit is that leasing saves your cash on-hand, so you can use that in other impactful areas such as marketing, product development or salaries. Depending on your situation, this may be a viable option.

Healthy dialogue and consideration will yield beneficial outcomes.

When considering a technology purchase, defining the need, considering the alternatives, and overall timing are critical.  The IT team, together with the CFO, should respectfully collaborate, leveraging each other’s skills and expertise, to make the best ultimate decision for the organization.