technology budgets

The Right Technology Actually Costs You Nothing
 

While it is difficult to measure and quantify, most companies find that the right technology can improve employee performance and save labor costs far in excess of the cost of the technology; therefore the right investments in technology should really cost you nothing compared to the savings gained. You can prove this theory to a certain extent by comparing the revenue per employee generated by the Fortune 500 companies before the computer craze (say 1980) to revenue per employee generated today. Even after adjusting these amounts for inflation, today’s employee generates from five to twenty times the revenue today compared to 1980. People haven’t gotten smarter, they are just far more efficient. Consider these examples:

 

In 1980, the process of producing a letter involved handwritten drafts deposited in secretarial pools where eventually the letter would be typed and routed back to the author. A series of handwritten edits and revisions followed, including a typed envelope. This process could take several days to complete, copies were then made and filed away, sometimes in duplicate or triplicate. Later these files were archived or shredded, a process that required more labor. Recording archived papers and retrieving them could take up to a half hour. At the time Xerox estimated that each page of paper produced by a corporation in 1980 cost about $50 to produce, handle and store once all costs are considered. Today, letters are prepared faster on computers. Built in tools check spelling and grammar. E-mail systems send these letters immediately and archive them as well. The cost of producing that same letter today is estimated to be les than $3.00, and some estimates are far lower.

 

In the 1980’s manual time sheets and expense reports required handwritten reports coupled with calculations. Other employees would gather these reports and re-enter the data. Both procedures were prone to human error. Today many employees enter their time and expenses into web browsers via drop down boxes. Input time is dramatically reduced, the need for hand calculations are eliminated, errors are far less frequent, the need to re-enter data is eliminated, logical rules automatically check for reasonability etc.

 

Also in the 1980’s, companies employed a labor intensive reordering process which often included manual inventory counts, comparisons to desired stock levels, preparation of purchase orders, mailing these orders or manually phoning them in to the suppliers, the re-entering of these orders, etc. This process was slow and subject to errors. By contrast, today’s automated supply chains keep track of goods sold, and automatically reorders those goods when optimum re-order points are reached. As orders are produced, they are transferred to the suppliers accounting system automatically for immediate processing. There is virtually no labor involved. Built-in logical rules ensure that goods are reordered at the optimum times, and at optimum quantities. These just-in-time inventory systems have dramatically reduced the order to shelf time from about 90 days (for JCPenny’s in 1980) to less than 3 days (for much of Wal-Mart’s goods today). Quicker orders allow companies to carry lower levels, which in turn reduces the carrying costs and interest on the floor plan note. More dramatically today’s webbots can even perform reverse auctions on the fly during this supply chain process to have suppliers competing to bid down the purchase price of goods.

 

These examples (along with hundreds of others including direct deposit, bar code scanners, cellular phones, financial reporting, the internet, CRM tools, printers, faxes, e-mail, spreadsheets, and more) offer proof that technology has dramatically reduced the expenses for all business large and small over the past 25 years. The unprecedented gains in the Dow Jones, S&P 500 and the NASDAQ can be directly attributed to technology by catapulting profits which in turn catapulted market capitalization (even though various political parties like to claim credit for these results).

 

The Type of Technology You Should be Paying for
 

Given the dramatic impact technology can have on a company, it is folly to believe that one-time investments or investments in computers alone are enough. In addition to computer hardware, technology investments should also include software, training, peripherals, and infrastructure. Computer hardware too needs to be replaced periodically as well. Too often companies fail to invest in the entire technology package. Inadequate training, slow printers, or the lack of a fast internet connection can negate performance gains if not render your technology virtually impotent. Consider the following examples which illustrate this point:

 

If a microwave oven took 8 hours to bake a potato, you would likely never use that microwave oven. Likewise, if your slow internet connection takes 25 minutes to dial up, get connected, search, surf and find what you are looking for, it is doubtful that you will use that internet technology to its fullest.

 

Today’s HP 4100 printer can print 25 pages per minute at a cost of just under 1 cent per page before paper costs. By contrast, the older HP LaserJet 6 printers cost about 2.5 cents a page to print before paper costs. This is because the HP 4100 printer applies toner far more efficiently than does the HP LaserJet 6. Working the math, we see that saving 1.5 cents per printed page over the course of 20 boxes of paper saves $1500 (10,000 sheets times 10 cases times 1.5 cents per page = $1500), which is about the cost of the new HP 4100 printer. Not only will this new printer pay for itself, but your pages will print far faster as well, saving employee wait time.

 

Training is important as well. Often employees are given nice computers and software applications, but without proper training, they are unable to capitalize on these investments. As a result they either use their technology inefficiently or not at all. As a seasoned trainer, I can attest to the fact that tens of thousands of attendees find that attending 8 hour technology training courses on Excel, the Internet, accounting systems, etc. are well worth the time and expense. They know that they will recoup this time and financial investment within a year just because they are better able to utilize their technology.
 

Rules of Thumb
 

There are many rules of thumb for technology investments, and a sampling of these are listed below:

 

·         Companies should reinvest about one-third of their technology costs each year for maintenance, replacement, and training purposes. For example, in 2004 if your company spends $100,000 for hardware and software, you should expect to spend another $33,300 per year to maintain and upgrade those systems, and to train employees in the use of those systems.
 

·         Companies should invest about 5% to 10% of their revenue in technology, depending upon their particular industry and based upon how technology savvy the company intends to be.
 

·         Each staff member in your organization that needs one should have:

 

o        A relatively new computer;

o        Operating on a reliable LAN;

o        Equipped with the latest software applications they need;

o        E-mail;

o        Access to a fast printer;

o        Virus protection;

o        Annual training
 

Some companies find that a technology budget of $2,000 per year per employee is a good amount to budget for individual employee technology purposes. The company’s core technology infrastructure including servers, LANs, hubs cables, routers, wiring, phone systems, etc is separate.
 

·         Computers should be replaced after 36 months. You should keep the same operating system installed on that computer for it’s entire life – upgrading to a newer operating systems which was not engineered and tested for that computer too often leads to problems, crashes and blue screens of death.

Sample Technology Budget
 

A sample 5 year technology budget for a smaller 15 person organization with revenues of approximately $1.5 million is shown below. This budget includes the cost of providing each of the 15 employees with the following:
 

1.       A good current computer with plenty of RAM and a flat panel monitor.

2.       A good server-based local area network, including firewall.

3.       A good assortment of application software, including Microsoft Office Professional, Adobe Acrobat, etc..

4.       Anti-virus and anti-spam software.

5.       Access to a high speed printer.

6.       Cellular phones for all.

7.       Peripherals such as PDAs, cradles, cameras, and other gadgets.

8.       High speed internet access.

9.       E-Mail.

10.     Implementation.

11.     Training in the use of the various equipment and software applications, including annual training.

12.     Insurance to cover and protect the equipment.
 

Also included in this technology budget is the cost of a good accounting system, including implementation and training.
 

This technology budget does not include the cost of supplies such as printer paper or toner. Other technology costs that you might want to consider adding to this budget include the following:
 

1.       PBX-based multi-line phone system.

2.       Copiers.

3.       Scanners.

4.       Color printers.

5.       Web site.

6.       Web site publishing tools (DreamWeaver, Cold Fusion or FrontPage)

7.       E-Commerce web store.

8.       Document imaging solution.

9.       CRM tool.

10.     Remote access (via Citrix, Terminal Server, or Go To My PC)

11.     Security system.

12.     Electronic supply chain.
 

Conclusion
 

Often technology doesn’t cost us anything, when the right technologies are implemented correctly, the savings that result often exceed the cost of technology. It is important to note that training is an important aspect of making technology work best. It is also important to recognize that keeping your technology current is also important. Many businesses who think CHEAP actually are costing their companies a great deal of money and quite possibly the future of the company.

Over the years I have asked more than 100,000 people the following question: How many people in this room have ever purchased a computer and later regretted that purchase? With the exception of computers that just plain did not work or did not arrive, no one has ever regretted purchasing a computer. That’s a pretty good litmus test.

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