We all know that as a business you need to get every last dollar out of your investments in order to be profitable but keeping old IT equipment could end up costing your business more in the long run. When you buy, for example, a new computer you end up paying x amount of dollars and get the newest hardware. Over time, the performance of the PC will decrease and it’s not that the hardware has ‘gone bad’ – it’s that the software you are running is a more modern version and in most cases will require a more powerful system to keep pace.
So how long should I keep old IT hardware?
Well, in order to answer that question we must first take a step back and analyze the business. We know that 99.999% of the time human resources are the most expensive cost that a business has – people, especially good ones, cost your business the most money.
This means that when your employees have to wait for something to load or are slowed down by the speed of their computer, it has a direct impact on your business’s bottom line. To illustrate this point, we will look at the following example:
Let’s say that ABC corporation has an annual revenue of 25 million, they have 25 employees, and for simplicity, each employee makes $20 per hour or $41,600 per year. Given these numbers, the total cost of payroll per year is $1,040,000.00 and the company makes a net profit of $23,960,000. We will use this as our baseline.
Now let’s say that your employees need to wait for a screen to load every time they enter an order. Their computers are 3 years old and this wait time has been increasing since the new version of your primary application came out 3 months ago. Each subsequent release has increased the time spent waiting for things to load and it appears that the software vendor has increased their ‘recommended specifications’ but the computers at ABC corporation are still well within the minimum supported specification.
This wait time is 5 minutes. Well, 5 minutes for each employee per order equates to about 125 minutes of lost time per day minimum to enter orders. 50/60 = ~2.08 hours per day = ~41.67 hours lost per work month = 500 hours lost per year = $10,000 of the payroll is lost due to productivity loss at the minimum and goes up per order.
What about the loss of revenue?
Since the employees are waiting 5 minutes or 500 hours per year to enter orders, they are not able to process as many and this directly equates to less revenue. So, your 25 employees bring in $25 million in revenue which equates to $1 million per employee annually. This means that each employee brings in roughly $83,333.33 per month, $4,166.67 per workday, or $520.83 per hour. This means that for 500 of those hours per year they cannot bring in revenue since they are waiting on the order entry screen. This equates to $260,416.67 in lost revenue on top of the $10,000 that you are paying them to wait those 5 minutes each day.
For ABC corporation, that 5 minute delay costs their company a total of $270,416.67 per year
Over time, as software is upgraded and changed its performance will naturally decline which means that your costs will keep rising. In the case of ABC Corporation, it would make sense to upgrade their computers to rid themselves of the 5-minute delay. And at $270,416.76 per year, they can and should budget to replace their workstations more frequently. Of course, this is simply an example to illustrate the cost of productivity loss but the point is – keeping your hardware until it fails is costing you money. The benefit of working with a Managed Service provider like us, is that we can help identify these issues so that they can be corrected before they cost you.
Most, if not all, manufacturers will warranty servers, workstation, and other IT equipment out to 5 years. Some, like Dell, will even offer extensions beyond 5 years (much to our dismay). While you might think, “I am saving money by not having to replace these computers” but as we have shown above it could be costing you far more to keep them in service. This gets compounded by the fact that hardware doesn’t fair very well beyond 5 years and is more likely to fail. Even if the computers are under warranty, the failure itself might cost you more in productivity loss and revenue loss (even if the parts and labor to fix it are covered under the warranty).
For more information or to perform your own detailed analysis, please check out our IT Cost Calculator