SunGardASVoice: Why It's Time To Finance That Next Big IT Project

Mar 27 2014, 9:46am CDT | by

SunGardASVoice: Why It's Time To Finance That Next Big IT Project
Photo Credit: Forbes Business

By Christine Hall

IT executives say budgets are back, and, combined with continued low financing options, this means 2014 could be the year for companies to dust off those technology project plans.

According to a survey of 900 IT leaders in the United States and Canada by IT services firm TEKsystems, budget optimism is at the highest point since the economic downturn, with 63 percent of respondents saying their budget would increase,

However, not just any IT project will do, said Gary Marshall, CIO of SunGard Availability Services. In fact, he added, the term “IT project” is a misnomer.

“Every project is an ‘enterprise, multi-department project,’” said Marshall.

Questions to ask before financing

The IT department typically isn’t a revenue-generator, but it can (and should) be considered a productivity-booster.

When considering an IT project, four areas of value must be considered:

  • Strategic advantage – Will the project allow you to do something your competitor can’t?
  • Revenue generation – Will the project create value for the money invested?
  • Cost avoidance – If productivity improves, will the company avoid unnecessary costs?
  • Cost reduction – Will the project reduce costs while increasing profits?

Marshall said if the cost of executing on those four areas exceeds the value of the project, then don’t do it.

“On the flip-side of the coin, when making improvements, you should be investing in IT where its only job is to improve performance of the company,” he added.

Financing IT projects strategically

For many companies, leasing will be a critical enabler for new IT projects.

“We are definitely seeing more companies entertaining leasing [IT equipment], even on deals that are $100,000 or $50,000, where leasing wasn’t previously entertained,” said Kevin Baranowski, director of sales for New York-based Align Communications Inc., a provider of technology infrastructure solutions. “Now, we are even seeing leasing being extended or companies are adding on to their leases, billing them as operational expenses rather than capital expenditures.”

Right now, the cost of financing is relatively low, and it is expected that costs will hold steady through most of 2014, However, companies must also keep their eye on interest rates, which will likely rise as the economy continues to improve.

Still, any challenges companies face along these lines are in the “good problem to have” category. Companies that have been in heads-down, doing-more-with less mode are starting to see their budgets opening up. Indeed, Baranowski expects large-scale projects that have been on hold to come online early this year.

Debt financing opens up new opportunities

For companies that decide leasing is not an option, there are other financing strategies available for companies to consider.

Debt financing, for example, can open up new opportunities for companies. This can come in the form of a line of credit from the bank or, depending on the size of the company, angel investment or venture capitalist funding. Another option involves a lender providing working capital by purchasing the accounts receivable from a company.

With a variety of financing options and a strategic approach to project selection, funding for your company’s next IT venture is easily within reach this year.

Christine Hall is a freelance journalist specializing in banking and finance, public companies and technology. She was a staff writer for nine years at the Houston Business Journal, most recently as banking, finance, and technology reporter.

Source: Forbes Business


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