Special Report: Making the most of it

Currently there is a strong move towards consolidation throughout the business world, ensuring that the infrastructure is working efficiently by streamlining environments. Companies rightly believe this to be a cost-effective method of increasing efficiency within the constraints of the IT budget. However, in many cases, this results in excess unused high original value equipment or unnecessary use of effectively redundant equipment. Support costs on ageing IT assets are sometimes greater than the value of the equipment itself. Failure to redeploy or re-market unwanted IT assets can effectively waste 20% of the IT budget - a figure that few businesses can afford to ignore.

Many businesses hold large amounts of sensitive data on the corporate infrastructure, making them extremely wary of re-marketing. However, it is standard practice to ensure that data-bearing devices are completely cleaned to US military standards.

A further problem is that businesses continually add to their infrastructure over time, so it becomes a huge task to list exactly what equipment they have. An audit can produce an accurate report of all equipment, including its configuration and components. It can also provide a valuation of the existing equipment.

Remarketed IT equipment offers considerable technological advantages to many companies. Those looking to upgrade their systems can use re-marketed IT as an affordable route to gain a major increase in efficiency and performance. Rather than paying a premium to buy new, and then having to wait until the equipment is available, they can buy high quality, affordable and immediately available equipment which has already been tested in a live environment. The cost savings can allow a company to buy better-quality or higher-specification equipment than they could afford new.

Aligning accounting policy
Perhaps the most important point to appreciate with IT equipment, particularly with enterprise servers, storage and high-end networking equipment, is that its market value does not decline steadily, but in large and irregular steps. As soon as a company starts on a consolidation project, it should be looking to recoup some of its initial expenditure by remarketing its unwanted assets. Indeed, by getting into the habit of remarketing equipment, companies can turn this to their advantage - constantly easing the financial progression to the latest systems.

However, accounting practices often prevent companies from adopting the approach of recouping residual value from depreciating IT assets. IT directors should therefore work closely with their financial team to ensure that the accounting policy is aligned with the IT policy.

For example, most companies change their main business systems every three to five years, but upgrade or consolidate mission-critical systems 12-24 months from initial implementation. As shown in the graph, standard accounting procedures write the equipment off over four years. Thus, the accounting policy would assume that, after two years, the equipment would be worth exactly half the initial investment. However its actual market value is below 30%. Selling would lead to a book loss, so equipment is often retained, after its useful life has ended.

Financial directors must recognise that data centre assets have a long term value, but that the company’s depreciation policy may not reflect the actual market value of the equipment. Unless the accounting policy matches the IT strategy, companies will be hampered from investing in new equipment, slowing down their ability to innovate.

Apart from the financial benefits, there are obvious environmental benefits in ensuring that IT is reused and not dumped. Any end-of-life products identified in an audit can be disposed of in an environmentally friendly fashion, which complies with the demands of the Waste Electrical and Electronic Equipment (WEEE) Directive. The UK is currently moving towards full adoption of this Directive in mid-2004 and all companies will be obliged to implement appropriate disposal policies for their waste equipment, or face fines.

Phil Reakes is managing director of SML, Tel: 0118 903 7907, E-mail: phil.reakes@selwaymoore.com

CAMPAIGN ON WASTE
The British Chambers of Commerce and the Institute of Directors have joined forces with Envirowise to form a new partnership to show businesses how to be less wasteful and more profitable by reducing overhead costs. Launched in October, the campaign tackles the obvious costs of waste - such as the landfill tax - and also focuses on ways in which efficient production and waste management processes can reduce costs and increase profitability.

Companies face increasing demands to lower prices and improve quality, and Envirowise, a programme funded by the DTI and the DEFRA, helps businesses create long-term sustainable growth by improving their environmental performance. Envirowise has helped UK businesses save over £797m since its launch in 1994.

LOCAL AUTHORITY CHALLENGE
In October, the UK Department for the Environment, Food and Rural Affairs (DEFRA) invited local authorities to bid for £135m of funding for waste minimisation and recycling work over the next two years. This is the latest tranche of funding being made available on a challenge fund basis, which is additional to the mainstream funding that government provides to support waste management work in local authorities - £114m was made available in 2003-04.

DEFRA has also announced an enhanced approach to partnership working, encouraging those authorities that handle large volumes of waste to work with each other and with government to make best use of funding.