Making Sense of IT

I vividly remember the song “If I Had a Hammer” from Peter, Paul & Mary. Having been in IT for some 30 years, a hammer was not always the furthest thing from my mind. A hammer actually has a use in IT, but you’ll need to read a bit further before I tell you what for and why. The point I want to make is that technology is huge, not only in pushing the production possibilities curve and increasing efficiency, but in adding complexity as well. This complexity can become a source of frustration, but being careful not to add unnecessary complexity is a key factor in not only implementation, but also in keeping support costs down.

Understanding the Iceberg.
Take a close look at the drawing to the left. Take special notice that the vast majority of the iceberg is under water. The point here is that the entire iceberg represents TCO, or Total Cost of Ownership. First, there are tangible items, like cost of hardware, software, some labor, and the like. Taking a closer look, there’s the cost of maintaining, administering, training, shortened useful life, replacement strategy, annual support costs, downtime or slowness affecting productivity. In other words, before embarking on this voyage, perform a thorough analysis to understand all aspect and most importantly, understand useful life.

You end up with two product prospects. Solution A has cost of $100,000 and Solution B is $125,000. Solution A has 30% headroom in capacity and Solution B for $125,000 has 100% headroom.

You may try to save money and opt for the item costing $100,000. Say it costs $25,000 to deploy and it won’t include any other costs for the sake of simplicity. So if the item lasts 5 years, your cost is $100,000 + $25,000 for a total of $125,000. Dividing this into 5 years it will cost you $25,000 per year.


By far the biggest mistake folks make is in under buying which ends up affecting useful life.
That is, they sign up for a solution, thinking they are getting a bargain and not considering the needs won’t be met based on current company growth. Folks, a 5-year lease payment will always be infinitely more attractive than a 3-year payment, but it’s important to understand the true TCO. Let’s review this from a 10-year business cycle perspective.

Alas, Solution A was undersized and it only lasted 3-years and had to be replaced prematurely, then replaced a second time for 5 years, and a third time within the ten year period. Costs were $100,000 x 3 = $300,000 for the equipment plus 25,000 X 3 = $75,000 for the deployments. TOTAL COST $375,000 over ten years or $37,500 annually.

Had Solution B been selected, you could have saved some serious coin as it was replaced twice in the same ten-year period. Costs would have been $125,000 x 2 = $250,000 for the equipment plus $25,000 x 2 for the deployments. TOTAL COST $300,000 or $30,000 annually.

In the end, Solution B wins out, as there were only two implementations in the ten-year period. It happens more often than you know. We’re not including support costs and the business disruptions, disposal costs, and other associated costs, so the real TCO is likely somewhat higher.

Now, about that hammer reference at the beginning of the eNewsletter. Once upon a time yours truly worked for a company called Yamaha Corporation of America. I was largely responsible for IT Operations in North America. When reviewing the operations of the PC group, I found a guy that was running a routine on hard drives. He would sit and monitor this program for hours to ensure all data had been written over. I came over and showed that him that with a couple swipes of the hammer (with safety goggles of course) he could do 60 of these hard drive destructions per hour.

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CEO’s Quick Reference Guide!

As the person running the company, you need to know a few things about IT. Things like containing costs, knowing when to pull triggers, and knowing when to hold tight for something better coming around the corner.

First off, let’s look at costs. To be in line with industry norms, your costs should be somewhere between 2% at the low end and 5% at the high end of gross sales. The lower number is used when you have more basic needs such as e-mail, phones, a small web site presence, and maybe a server or two. In short, you’re not using an e-commerce model as your lifeblood. The higher number indicates that technology is not only key to your business, but you must continue to make strategic investments to not only sustain, but grow. In short, it’s your competitive lifeblood.

On the basic end, that is closer to 2% and sometimes even less, the real concern is whether you are under spending and not leveraging technology enough. Web sites need a refresh every two to three years, and the search engine optimization (SEO) must put your top twenty phrases on the first page of a Google search. Server and other infrastructure items like firewalls and switches have a useful life of about five years. Laptops and PC as well, but don’t try to save money by not replacing monitors as it’s a small price to pay to ensure you’re folks eyes work well! In short, as long as you’re keeping your equipment fairly current and on a plan to replace 20% of the items per year, it should be a pretty steady cash flow. Keeping software and hardware maintenance contracts is nearly always worth the money with few exceptions.

On the higher end of the spectrum, the question becomes not so much as to whether you need what you are buying, but more so about what you are investing in. Are your investments providing either a) significant savings or b) higher returns in your technology dollar investment than other technology spending? For instance, VMware saves a lot of outfits a lot of money. It involves using less hardware, less electricity, less cooling, with more disaster recovery (DR) ability. It’s a win from every angle possible. The harder decisions lie in weighing the benefit of more strategic items, like upgrading or changing an ERP system or swapping a large data center to 240V to save money on electricity which always increases in cost. This is where strategic planning takes place, and it’s what we do at Roundbrix. We look at the entire picture, but what exactly is that?

The entire picture consists of all the components and needs to be the basis for any metrics and improvements. Included are hardware purchases and leases, support costs, software costs, hardware/software support costs, telephony costs, annual technology-related contracts, ERP costs and others. If you can negotiate multi-year contracts for foreseeable expenses like ERP support, as long as you have the cash and the return is greater than most other investment vehicles, it may make sense to prepay for a few years. Let’s not forget the bills for phone circuit/usage and internet circuits, both of with should be reviewed as often times there are savings to be had there as well. For good measure, if you incur downtime, that too is a cost. We’re strong believers in understanding and planning software and hardware cycles to create the largest win possible. For instance, if you are moving to a different version of ERP application software that is newer, but a large change, buying a server creates a relatively inexpensive, yet strong fallback position. Another example might be that you’re moving. Do you spend $10-$20k out-of-pocket to move that 4-year old phone system? Another option is to buy new or possibly lease it, and only have a payment of $600 or so, saving you $10k-$20k for those larger out-of-pocket items as moves get pricey fast!

At Roundbrix, we’re in our 11th year and have a “been there, done that” set of skills through simply having managed the ship well through many a stormy sea. We know how to keep things afloat and can help you safely to shore!

Basic, Managed and Complete Hosting Options – Choose Wisely!

You won’t get an argument from me when it comes to the cost-effectiveness of hosting. It’s a really good thing and a no-brainer in many cases. With the new “Cloud” word, which is defined differently by so many outfits, we’re going to take a closer look at the options here and the risk versus benefit equation. You need to ask yourself a few questions:

Do you want your server in house or hosted with true oversight?

Do you need dedicated hardware and bandwidth?

Do you want to manage your servers or do you want them managed?

Although there are many flavors of hosting out there, the two types of I think most often are Basic Hosting and Managed Hosting. But at the end of the day, we feel another option is necessary that significantly completes the entire picture, and that is Complete Hosting, which Roundbrix offers to its clients. You’ve heard the term you’re in good hands with Allstate. The same applies with Roundbrix Complete Hosting offering. Let’s review the options in more detail.

Basic Hosting is defined as providing air conditioning, electrical, Internet access and a secure space where you can place your equipment. You are responsible for all hardware, software, backups and network security issues. You’re also responsible for all failures and remediation. Think of it as an empty apartment with utilities. The biggest downside to Basic Hosting is that those very same resources that are shared to give you the most bang for buck can also swing the other way. An example might be that some hosting providers put too many customers on a single server in an effort to maximize their profit, but you may experience intermittent performance problems as a result. Another example is they may pool too many customers on a smaller internet connection, providing a lackluster experience for those trying to access your systems, whether it is an end client trying to access your website, or your employees trying to access a hosted application.

Managed Hosting is defined as looking after the hardware (if it is provided) and ensuring it’s up 24 x 7 x 365. It provides you with the same climate-controlled, clean power, internet circuit and physical security as Basic Hosting. The difference really comes into play by providing additional services of value, like providing dedicated hardware (at a cost), system backups and providing the option for dedicated bandwidth. If hardware is being leased or provided, it’s up to you to clearly understand when things break, who fixes it. Some outfits may monitor performance, but again, the name of the game here is no assumptions. When there’s an issue here, it may be that it’s not ‘their’ issue, leaving you with a bitter taste or scrambling to find a resource to help resolve the issue. Unfortunately, we see this a lot more than you might think. Your issues are important to us and we will always address them in a timely manner.

Complete Hosting includes the remaining pieces, many of which can hurt or cause unexpected stoppages or risks. This becomes a matter of total ownership. Additionally in my mind, Managed Hosting should also include managing the backups, disk space, looking at network and server performance including RAM and CPU, staying on top of maintenance contracts and other expirations and renewals, anti-virus, strategically planning for replacement of firewalls, switches, and servers at the core of your infrastructure. With complete hosting, you also have more flexibility at every level.

Due Diligence for Managed Hosting. At the end of the day, it’s important to weigh your options wisely and make the right choices. For the ultimate peace of mind, Complete Hosting is the best way to go, but know who you’re dealing with and where your data is, including backups. Remember, your customer lists and financials are likely very sacred and need to be held close to the chest. Ensure you know the answers to these five questions before moving forward with anyone:

1. Where are my servers and systems and are they shared, if not customer provided?

2. Where exactly is the actual call center and what are the hours of operation?

3. If they perform backups, where are the backup stored? And for how far back?

4. Is the bandwidth dedicated or shared? How much dedicated or bursting up/down speed?

5. Am I notified promptly when there is an issue?

With computing infrastructures, much like life itself, nothing is perfect, but stacking the cards in your favor clearly lessens your risk. At Roundbrix, we are unique in that we will manage the entire enchilada and work with you to stay on the correct strategic path, allowing you to focus on your business. From our shop to yours, you’re in good hands!

Ed

Allstate and “Good Hands” are a registered trademark of Allstate Insurance Company.