Admin Alert: Budgeting For Your Next Power Systems Upgrade
August 7, 2013 Joe Hertvik
If you’re acquiring a new Power systems machine in 2014, you may be preparing your capital budget right now. However, there’s more to purchasing a Power system running IBM i (Power i) than just a good purchase price. This week, I’ll look at some other expenses you may encounter when buying new hardware, and what you can do to budget correctly and minimize those costs.
Budget For Operating Expenses, As Well As Capital
A frequent Power i purchasing mistake is that companies sometimes make sure they have enough capital budget for new or upgraded machines, but they forget to budget for additional operating expenses that will occur with the new hardware. Here are some common situations where your new hardware expense will be coupled with additional operating expenses. As you plan your next purchase, make sure you budget for these other required items, as needed.
Additional Leasing Expenses
This section is for organizations that lease their Power i system boxes. Skip this material if you pay cash for your Power i hardware.
Many times, you’ll want to lease new Power systems hardware before the lease on your existing Power systems hardware runs out. This occurs when you need to install the new hardware during a designated slow period that will occur before your existing lease runs out. The problem here is controlling what additional leasing costs are involved with a dual installation of your old and new hardware.
For example, if you’re running a Power system at a retail-oriented company, you may not be able to install the new hardware between October 1 and December 31 (the traditional busy season). If your current lease runs out on December 31, you may want to install and cut over to the new hardware in September to avoid production disruptions. But this leaves you with a problem in that your organization may have double lease payments from September through December, as you would have to pay both the old and the new leases for three to four months before returning the old machine. This is where a lease deferral comes in.
In a lease deferral, the leasing company will defer lease payments on a new machine until the prior lease runs out. So in our example, you could negotiate with the new leasing company to defer payments for four months (September through December) while you still had to pay for your old lease. If they agree, the leasing company would defer the new lease payments until January 1, and you would be able to use the equipment during that time without making any payments. But those deferred lease payments aren’t free. You will need to repay those four months of deferred lease payments over the 36-month term of the lease. So you’d essentially be paying 40 months of leasing payments over a 36-month schedule. Which means your monthly rate will be higher than it would be for a straight 36-month lease.
The key here is to determine how much your leasing rates will increase with a deferral, and whether that increase makes business sense for your company. Here’s a simple way to determine how much a deferral will cost you in higher lease payments.
It’s also worth mentioning that generally, longer lease deferral periods will result in higher leasing rates than shorter deferral periods. A four-month deferral will be more expensive than a one-month deferral. So keep that in mind when you plan to install your new Power hardware and try to make the overlap period between the old and new machines as short as possible.
Finally, you may be able to work with your business partner to shave some time off the expected deferral period. Some business partners will allow you to delay payment for a month after you make a deal, which can change the lease start date. IBM may also be able to offer help through special programs between its brands, especially if you are leasing through IBM Global Financing (IGF, IBM’s leasing arm). Check out all your options before you sign the contract.
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Joe Hertvik is the owner of Hertvik Business Services, a service company that provides written marketing content and presentation services for the computer industry, including white papers, case studies, and other marketing material. Email Joe for a free quote for any upcoming projects. He also runs a data center for two companies outside Chicago. Joe is a contributing editor for IT Jungle and has written the Admin Alert column since 2002.