Today’s challenging economic conditions are driving IT organizations to develop a viable financial strategy which almost always includes leasing. Lease expiration management is in itself a strategy. Several organizations within IT and the business including the CFO, treasury, CIO, capacity planners and members of the IT staff must work together to insure a cost-effective technology transition at lease expiration time. Leasing makes it possible for companies to acquire up-to-date equipment while preserving cash and credit lines for more strategic business activities. Leasing has a lower impact on budgets than purchasing and therefore provides companies with the opportunity to realize operational savings and productivity improvements in a timely manner.
Two types of leases are most common for data storage equipment. An operating lease is particularly attractive to companies that continually update or replace equipment and want to use equipment without ownership but also want to return equipment at lease-end and avoid technological obsolescence. An operating lease usually results in the lowest payment of any financing alternative and is an excellent strategy for bypassing capital budgeting restraints. A capital lease is classified and accounted for by a lessee as a purchase and by the lessor as a sale or financing, if it meets various criteria such as the lessor transfers ownership to the lessee at the end of the lease term or the lease contains an option to purchase the asset at a bargain price.
Lease expiration means that several organizations or departments will need to communicate. Often on little notice, the IT staff will be pressed into action as many businesses wait until the last minute to react when a lease expiration date arrives. The IT staff has to be ready with the resources at the right time to go through these financially forced actions and conversions. In addition, new technologies or higher than expected data growth rates can force a technology change before a lease expires, indicating that capacity planning may be a key part of this process. The IT staff checklist for a storage lease expiration includes but is not limited to the following activities:
- Data needs to be re-located or migrated to new or existing targets;
- Expiring storage equipment needs to be eradicated for legal purposes;
- Equipment may need to be physically removed from premises;
- New systems must be installed and tested;
- Energy systems must be re-balanced to accommodate newer technologies;
- Staff resources must be available for the transition to succeed.
In any case, organizational linkage is a requirement - not an option!
Action Item: Although the financial benefits from leasing are the key issue, there is more to a successful leasing strategy than a good price. The cost of coming off of a lease late can make the deal less attractive. Leasing strategies should include participation from key IT stakeholders to insure that the economics of a compelling lease deal aren't lost by not being prepared at expiration time.
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