The Cost of Computer Upgrades

Any business investment needs to go through a cost-benefit analysis. Companies do this all the time with technology investments, but they often weigh the costs and benefits incorrectly.

The typical view of IT infrastructure is that it is very expensive, rapidly depreciates, and does not directly impact the sale of goods and services. Management may look at a yearly budget and see 20,000 units of their product shipped for $3 million with a total operating cost of $2.8 million and an annual IT budget of $50,000. If they can hold off on replacing their oldest application server for one year and 10 of their slowest machines, they can save $20,000 from that budget. That could increase total yearly profit from $200,000 to $220,000, a ten percent gain. Does it really matter if they stretch the upgrades one extra year if they have been using the same equipment for four or even five years already? It usually does.

Delaying upgrades can have a huge impact on employee productivity. Computer performance is still increasing by huge percentages year after year. Every time a user clicks to open a program and waits five seconds for it to start or executes a search and waits 30 seconds for the result, they are losing productive time. A new system might open the same program in two seconds or execute the same search in 10 seconds. Performance in old systems will decline as yearly software updates add more capability or complexity to old programs. Hardware should be updated to match new demands and process old tasks faster.

Imagine a thought experiment where an employee who earns $12 dollars an hour spends six hours a day actively working on a computer and loses, on average, 20 minutes every day in productive time. That 10-minute loss equals $4 a day in lost wages. In one week, the cost is $20. If the employee works 50 weeks in a year, the cost of the lost wages is $1000. In an age when many business-class workstations with full software packages cost less than $1000 per system, losing wage productivity to delay a computer upgrade can’t be worth the payoff.

Any IT budget considerations should assume that savings on technology expenses will usually equate to a higher cost in payroll. IT might be thought of as a pesky and continual drain on profits, but when compared to the cost of payroll, will be meager. Since most companies are usually better at understanding the importance of having good people on their team, it’s better to think of technology not strictly as a cost, but as a way to put the necessary tools in the hands of their workforce, to most effectively employ their personnel investments.