Why should I spend money on fixing up my I.T. infrastructure?
The two main reasons are productivity and security. Over or under investing in I.T. will hurt your bottom line. The trick is to find the right investment for your situation so that your I.T. pays for itself and contributes to improving overall profit.
Our opinion is that the cost of computers, software and I.T. support services should be looked upon as an investment, not an expense. That means that there must be a genuine business case to confirm the investment is wise. This process is often subjective, as good I.T. merely sets the stage for improved productivity and/or prevents problems from happening. However, if you can't reach that conclusion, you should not spend the money.
We'll just speak about productivity and save the security issues for another article.
The premise of "productivity" is that improving the efficiency of your staff means they can turn the saved time into something profitable, like making more sales, handling growth without addition hires, improving relations with customers and other issues that can eventually improve your competitive position and your bottom line. Sounds good so far.
The value of productivity - you do the math
Let's take an example of a professional services company that does creative marketing work and has fifteen employees, including the owners. Let's say that the total payroll, rent and other overhead for running this organization is $750,000 or $50,000 each on average per year.
Now, assume their computers have some problems that cause them to need re-booting twice a day. They also have configuration problems that are slowing their computers down. And their e-mail server crashes two or three times a year causing them to take time contacting their customers to apologize for delays. Let's say that all these problems together wastes 20 minutes per day on average for each person. There are fifteen people, so that is 300 minutes or five hours per day.
In an eight-hour workday, a good employee will spend about six and a half hours working and one and a half on lunch and personal time. Let's call it seven hours though to be conservative.
The cost of time wasted due to poor I.T. infrastructure is therefore, at least, five sevenths of $50,000, or about $36,000. If one also considered the "opportunity cost" of the wasted time, it would be nearly $60,000 if the firm were earning 40% gross margin on sales.
To complete the business case, let's say that $10,000 in equipment, software and services was spent to install proper I.T. infrastructure and an average of $500 per month must be spent to properly maintain it in top form. It would be reasonable to spread the one-time cost over three years for investment calculation purposes, but let's write it all off in the first year and see if the investment is still wise.
The first year I.T. investment is therefore a $10,000 one-time cost plus $6,000 in maintenance. The savings are between $36,000 and $60,000, but let's downgrade them by 10% to account for I.T. improvements not actually eliminating 100% of the problems.
The return on investment is between 206% and 338%, ignoring the negligible difference in the time-cost of money. In effect, this scenario could potentially put an additional $20-40,000 in the owners pocket in the first year and an additional $30-$54,000 every year thereafter. That is a pretty good investment in most people's books. |