“How can I get management to fund IT?” As a financial consultant, it’s the question I’m asked most often. In fact, I almost feel like an advice columnist:
I am hoping to acquire some wonderful hyperconverged infrastructure that I love dearly. I have planned a dream tech refresh for our IT organization. I secured the buy-in from all of our stakeholders. Well, all but one. Our CFO has refused the procurement because it exceeds our budget. This is extremely upsetting to me. We didn’t know about hyperconverged infrastructure when we planned the budget. Now, I can’t imagine having anything less. I know that people can’t steal our happiness unless we let them, but we can’t move forward without approval from Finance. Please help me find a way out.
Many customers face this challenge. Thankfully, most spare me the melodrama – but let me share with now you how we get them what they want.
Recently, I consulted to a well-established, mid-sized, full-service logistics company that specializes in lean inventory management for their commercial clients throughout Europe. They had traditional IT infrastructure and a budget of $100,000 to replace servers this year. They were excited by the benefits of hyperconverged infrastructure, but it would cost $251,000. What could they do?
This problem is real, and can’t be waved away. The solution is a financial analysis. Here is what we did.
First, we put together a detailed ROI calculation that took into account all aspects of financial impact of the purchase. As I explained in my previous blog, the calculation begins with a full accounting of the capital expenses covered by a hyperconverged infrastructure purchase. With that server refresh, you are also getting storage, network, backup, disaster recovery, WAN optimization—everything under the hypervisor. These components, which the customer planned to refresh over the next three years, would cost $470,000. So, hyperconverged infrastructure saved $219,000 in planned capital expense ($470,000 – $251,000).
Next, this customer reduced a number of recurring operational expenses. They saved roughly $125,000/year by avoiding planned expansion of headcount and consultants needed for traditional infrastructure management. They reduced power consumption by 75%, saving another $18,000/year (That also reduced CO2 footprint by 77.6 tons—which fit with their corporate Green initiatives).
All together, this ROI analysis showed a 5-year Net Present Value (NPV) of $590,000, with an Internal Rate of Return (IRR) of 115%, and payback in 15 months.
|Review period||60 months|
|Average monthly benefit||$16,973|
|Net Present Value||$591,408|
|Internal Rate of Return||115.4%|
|Payback Time||15 months|
|Based upon an assumed cost of capital of||8%|
This is all very good, but how did we deal with the budget constraint of $100,000 for the fiscal year? With a strong ROI case like this, a lease made it simple to align payments fit budget plans (SimpliVity provides customers a leasing option for this purpose). In this case, we aligned the payments to match budget planned for IT component refreshes over the next several years.
That left one issue remaining – this customer had recently purchased storage. The CFO would not approve of disposing of this asset—with book value of $90,000—so soon. The solution to this problem was increase the lease cash payment to cover the remaining book value on the balance sheet. With a strong NPV of $590,000, even after subtracting $90,000, we still have a strong NPV of $500,000.
And the deal was done.
To sum up, here are the three keys to making this work:
- We built a strong ROI case based on a detailed analysis of this customer’s capital and operational expenses. This is fundamental. If you don’t have a strong ROI case, you can stop here.
- We used leasing to arrange payments that would align with current fiscal year budget.
- We accounted for book value of current assets replaced in our financial analysis.
In my experience, if you get these things right and present them with the level of detail that the CFO needs, you will not be refused.
If you are ready to pitch hyperconvergence to your CFO, download your copy of the Gorilla Guide to Hyperconverged Infrastructure Implementation Strategies.