Microeconomics undrstand of a computer replacement schedule?

September 6, 2008 10:09 AM

I work in IT in an industry that is currently suffering (forestry in Canada), because of that, the current computer replacement schedule (of approx 2500 computers) has moved from a 3 or 4 year schedule to 5-7 years. I am also *just* starting a course in microeconomics. I'd like to learn, and at the same time create a graph and information to understand and be able to explain the opportunity cost of this move.

As well, I'd like (if what I learn proves it) provide convincing evidence of the worthwhileness of keeping closer to the original replacement schedule. And, I admit, I want to make myself look good :)

Where do I start? Is there an available resource that already covers this issue?

Thanks in advance!

posted by Kickstart70 to work & money (7 comments total)

Darn typos! My big hands on an Asus EEE.
posted by Kickstart70 at 10:18 AM on September 6, 2008

I'm not really sure that opportunity cost is really what you're going to be looking for. When I think of "opportunity cost," it's sort of ‘what else could we be doing with this money?’ I doubt that's what you're looking for, since that's the sort of thing that might have led them to decide not to spend the money on IT in the first place. (I.e., the opportunity cost of spending $1M on IT is not being able to spend that $1M somewhere else where it might generate greater ROI.)

Really, what you need to show is that investing in IT makes good business sense even in a climate where there may be lots of other things competing for money/resources. Basically, it's all about ROI.

What's the benefit to the company of replacing their IT assets in 3 years instead of 7? If you can quantify those benefits, then you have a leg to stand on.

Obviously IT vendors have a big interest in showing that purchasing their products can lead to a big cost save (whether they actually do in practice lead to a save is more debatable...) so you might look at some white papers there. Typically the big factors driving (alleged) cost savings are decreased maintenance expenses and, more recently, energy costs.
posted by Kadin2048 at 10:55 AM on September 6, 2008

Decisions like this usually come down to three primary decision routes:

Cost
Compliance
Quality

I like to draw them as a triangle when I write up . Most peoples arguments seem to fall into one of these three areas. In your case, the decision will directly benefit the "cost" category. Its hard to show that a 5-7 year schedule is going to cost more money. PC's fail -- sure. But its cheaper to replace them as they fail, and it takes less human time to set them up, and it costs less for the end user in productivity to not have to find where all of their stuff is.

So the only place you will get traction is in the other two categories. What is the quality effect of this decision? Will the work people do suffer? Will they fall behind with technology (ie, they are stuck on Windows 2000, and Vista is out). Will they not be able to run an application they need.

The compliance category would argue things like "our users will leave if they are forced to use these old as crap computers", or "the government mandates we have newer machines".

In reality -- A 5 year old machine isnt that bad, and in the future, 5 year old machines will be less "bad".
posted by SirStan at 11:03 AM on September 6, 2008

By the way -- going to your boss saying "LOOK DELL SAYS ROI IS BEST IF YOU REPLACE EVERY 2 YEARS" is really silly. I would talk with the powers that be and use this as a learning experience/case study. Carefully ask what the reasoning behind this decision is, and develop some metrics that you could track over time (failure, etc). You can then, in 3 years, write a case study report on the now vs then cost, and if it was a good or bad decision.
posted by SirStan at 11:05 AM on September 6, 2008

Please note that the question is not "How do I convince my bosses to spend more in IT, specifically in replacing these computers?".

It's about "how do I learn from this, specifically in applying what I am trying to learn in the microeconomics course I am taking". Convincing my bosses to spend money in computer replacements is a side benefit, not the primary reason I am asking.
posted by Kickstart70 at 1:09 PM on September 6, 2008

The opportunity cost of this move is that they will have more money to spend for other things. I'm not sure whether it makes sense to graph it. Typically, you speak of opportunity costs of expenditures/investments, not savings.
posted by bsdfish at 2:49 PM on September 6, 2008

Interesting question. I think this may be something that is hard to measure. And I also agree that it may not fall 100% into opportunity cost. You would almost have to calculate what the company is going to be spending in repairing the computers rather than replacing them and also factor in the time that is lost when an employee has to deal with a slow computer or one that isn't working.

The organization I work for gives our secretaries old computers and they are horribly slow and sometimes to repair we have to send them to our IT department. To me, that would be the cost.
posted by hazyspring at 5:44 PM on September 6, 2008