How To Choose The Best IT Solution Based On The Real Costs of IT

 

Just from a cost standpoint, there is a very big difference in the costs associated with your business from an IT perspective. The solution you choose can shape the financial and growth goals for your business in ways you may not have realized.

 

How Do You Look At IT Costs?

Do you approach your annual IT budget with apprehension and a feeling of “how much is IT going to cost us THIS YEAR?” Or, do you simply just modify last year’s expenses? New technologies, maintenance, upgrades, day-to-day complications and ever-growing security risk concerns can make creating an IT budget seem like guesswork. You know you need to stay ahead of what might be around the next corner, but how can you possibly assess what your IT needs will truly be from one year to the next?

It’s easy to get stuck in a rut of trying to keep up and not knowing how to spend or effectively budget IT dollars. Restrictive budgets and a lack of internal expertise often hold small to mid-sized companies back from making the right IT decisions for their business.

 

IT Should Be Viewed As An Investment

A study from the Massachusetts Institute of Technology (MIT) demonstrated that investments made in technology increase profitability for companies more than investments in advertising or R&D.

Do you view your IT expenses as the necessary cost of doing business or as an opportunity to do more and better business? When you look at the big picture and understand what your business stands to gain from the RIGHT investments, it can help to change perspectives. 

When technology investments are properly planned, they can contribute to the business value and prepare your organization for growth. Here are a few of the key benefits a business can realize by implementing the right technology:

  • Improved Employee Morale
  • Staying Competitive
  • Gaining Efficiencies/Streamlining Operations
  • More Productivity/Less Downtime
  • Improved Business and Financial Planning
  • Faster Service/Increased Customer Satisfaction
  • More Predictable IT Costs

 

With technology, it isn’t necessarily the amount you spend, but how wisely you spend it. When considering an IT expenditure, a basic guide to follow is determining the total cost and the overall impact it will have. Will the technology improve processes, provide an automated service or allow you to cut back on other expenses? With an investment-style approach to developing IT infrastructure, businesses should realize eventual cost savings in labor, capital equipment costs, gains in efficiency and streamlined planning.

Invest Regulator on Black Control Console with Blue Backlight. Improvement, regulation, control or management concept..jpeg

When you view technology as an investment in the future of your organization and make decisions that are in alignment with where you want to be and what your company objectives are, you will have fewer “tech issues.” When planned and implemented based on your future needs, technology becomes part of the process and is no longer part of the problem.

If you don’t have the expertise and vision in-house to help you identify strengths and weaknesses, evaluate your options, plan how to manage your IT budget in the short and long-term, and leverage IT to position your company for growth, it may be useful to look to a trusted third party for this kind of insight. Finding a reputable company to help you assess your IT and your IT expenditures can make good sense and ensure that you’re making the right investments going forward.

 

Shift Your Thinking

What is the current reality of your IT and how have you made decisions in the past? Since many small to mid-sized businesses can’t afford to hire a team of IT experts internally, they often end up being forced into a break/fix kind of scenario instead of taking a more proactive approach. Dealing with issues as they occur rather than investing in the right technology, as well as regular monitoring and maintenance may SEEM like a cost-savings, but is counterproductive and will most certainly cost more in the long term.

The Real Cost of IT to your Business

It usually isn’t practical for SMBs to have an entire IT department on staff, but the issue with this arrangement is that a small in-house team of one or two IT pros won’t have the broad knowledge base needed to manage daily operations, detect and mitigate security threats, and stay on top of emerging trends in order to effectively develop long-range plans.  A small internal team is typically too busy with day-to-day responsibilities and possibly even putting out fires that they don’t have the capacity to take on much more.

Failing to make long-range proactive IT plans tends to put companies in situations where they are simply putting a band-aid on systems and crossing their fingers that it will hold. Aside from the expense incurred when emergency issues need to be handled, one of the other great losses is time. An IT crisis redirects your team’s time and attention. Not just your internal IT team, but your entire staff. While everyone is focused on putting out the fire or finding ways to get their jobs done despite system problems, how many opportunities are lost and what is the impact on employee morale?

A reactive approach to IT can result in:

  • Low morale due to a stressful work environment
  • Low productivity and time spent not focusing on core business objectives
  • IT failures, which can cause data loss & loss of revenue
  • Higher, unpredictable IT costs

 

When you take a more proactive approach to your IT, your team can plan effectively for and anticipate potential issues. Proactive IT planning in most cases helps avoid issues completely.

If you haven’t seen the proactive approach “light” yet, consider how much the outages, downtime, and repairs are really costing you. If you are spending money and precious IT budget funds on reacting to problems, then waiting for the “fix,” your system remains open to problems in the future.

 

The Real Cost of IT

If you ask most CEOs or business owners about their IT you will probably get similar responses...irritation at the constant breakdowns and frustration at the cost. They typically count on others to manage it, so they don’t understand why there are constant problems and why their IT team or service provider can’t get a handle on it.

The problem that most companies have is that they are in a break/fix mode when it comes to their IT…equipment stops working, software isn’t working after the last update, a virus has infiltrated their system or employees are complaining that their equipment or software isn’t working. The shoe has dropped and the call goes out to have IT fix the problem.

If they have an internal IT staff, they just make the call and wait for the problem to be fixed. If they have an outside hourly IT service provider, they make the call and wait for the problem to be rectified, knowing that it is going to cost money to fix it. Because that cost is typically on an hourly basis, the more serious the problem, the higher the cost. Once the problem is resolved, everybody is happy until the next problem hits. And then, the cycle starts all over again. Again, and again, and again.


At the end of the year, when companies look at the cost of their IT, they usually focus on two line item costs...the labor cost of their staff or IT company and the cost of any parts or equipment that they purchased.

What many don't realize is that there is another hidden cost that is costing them far more than they know.
 
But, before we get to that...Let’s take a look at the actual costs associated with hiring:

In-House Staff

Managed Services IT Support

Strategic IT Partner

 The following charts outline the costs, as closely as possible, to the actual costs you would incur if you employed any one of these three options. However, the biggest cost factor that most employers miss is the cost of downtime. Take a look at the infographic and see what affects the cost of downtime has on your actual IT costs.

 Hiring Internal Staff Vs. Hourly Managed Services Vs. A Strategic IT Partner

 Click on the infographic to see an enlarged version.

The Real Cost Of IT

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What would an IT change mean to you?

Hiring an IT Manager - In-House Staff

Many companies hire an IT manager because they feel secure knowing that someone is there to handle all their IT issues. They are typically in charge of the server, routine maintenance, backups, software integration, software updates and fielding all user problems. The number of employees at the company determines the amount of time spent handling problems. Let’s look at how the cost breaks down for hiring an in-house IT manager. In this example, we are using the national average for an IT manager, who may or may not manage staff.

Core Compensation 1 Year 
Base Salary- National Average  $83,717
Employee Payroll Taxes 

 

Social Security 

Medicare 

Unemployment Tax 

 

 $5,190

 $1,214

 $322

 Total Payroll Taxes  $6,726
Insurance  

 

Health 

Worker's Compensation 

Total Insurance 

Time Off 

 

 $4,980

 $50

 $4,958

 $11,005

 Total Annual Expenditure No Retirement  $106,406
 Optional Retirement Benefits 

 

401K / 403 B 

Pension 

Total Retirement Benefits 

 

 $3,219

 $5,633

 $8,852

Total Annual Expenditure With Retirement

$115,258

 

Just looking at the cost of hiring an employee at $115,258, you would need at least 65 employees to break even. This is calculated using an average cost of $1,800/year per employee that most managed IT services companies charge on a monthly basis. What is important to consider here is that the more employees you have, the more time this IT manager will spend mitigating user problems and less time doing proactive work to prevent those problems.

Managed Services IT Support - Onsite and Offsite

Many smaller companies hire an hourly, one-man or small IT vendor to give them support. They may have an in-house employee who knows a little bit about computers to troubleshoot with the vendor on the phone, but most of the IT work is done by the IT vendor. They usually retain this small business or person on a monthly contract to perform the services they offer.

This IT vendor usually handles major server problems, routine maintenance, backups, updates and user problems. In other words, they are a break/fix vendor. They spend little or no time doing proactive work. They typically have numerous customers, so they can’t always get there right away when a problem occurs. They usually offer little in terms of advice on short & long-term planning.

Let’s look at the typical cost for this type of vendor. This example is based on the average hourly rate for an hourly IT vendor. (Based on approx 10-20 computers)

Hiring Hourly Managed Services IT Support - Onsite And Offsite
 

Average Hourly Rate  

Hours Per Month For Maintenance, Backups  and Updates 

Travel Time 

Monthly Cost For Routine Work 

 

  $125

 8

 1 Hour

 $1,125

 

Total Annual Cost Of Routine Work $13,500
Problem Support - Less than 20 computers  

Monthly Hours For Problem Support 

Travel Time 

Monthly Cost For Support 

 6

 2 Hours

 $1,000

Total Annual Cost Of Support  $12,000
Total Expenditure For The Year  $25,500

 

This example assumes that there will be one problem solving incident per month.  On the surface, by just looking at the cost of hiring an hourly IT vendor, you would think this is a great option. But, they usually have numerous  customers and little or no staff. 

If a problem comes up, they often attempt to resolve it remotely at first. But, if that doesn't work, they will make a site visit to resolve the issue.  The problem here is that they can't always drop everything and come to your rescue. And, that downtime will cost productivity.

Hiring A Strategic IT Partner- Fixed Monthly Rate

Some companies have started transitioning to managed IT vendors who focus more on being a strategic partner than just a break/fix vendor. These IT vendors typically have a larger staff with more varied skill sets. The businesses that hire them do so because they understand that it is more cost effective to hire an entire outside staff through this type of IT vendor who will perform proactive work and minimize their downtime.

This Strategic IT Partner will typically perform all of the same functions as the other two vendors, but with some major differences.  First, they will have one or more staff members performing regular monthly site visits to measure how your IT equipment and processes are performing compared to best practices and standards.  Second, they will identify areas of improvement that are costing your company money. Third, they will prepare a future plan for keeping your IT running efficiently and minimize lost productivity from downtime. In other words, minimize or eliminate problems.

Let's take a look at cost of the Strategic IT Partner.

 

Annual Agreement 1 Year
Monthly Agreement- Cost Starting At $3,000  Per Month   $36,000
Total Annual Expenditure   $36,000

 

In the above example, the monthly amount is based on 20 employees at an average of $150 per user per month.  The advantage of this type of vendor is a strategy to eliminate or minimize lost productivity.

By looking simply at the labor cost, there is a significant difference in cost between in-house staff, hourly outside IT support, and a monthly managed IT service provider. Let's compare side by side.

Comparison of Costs
  Average Annual Costs Pros Cons
In-House Staff $106,406
  • On hand to fix problems
  • Knows your business
  • No planning for future
  • Not cost effective
  • Lack of expertise in other IT areas
Managed Services IT Support $25,500
  • May have fast response times
  • Cost effective - If you have less than 10 computers
  • Unpredictable budget
  • No future planning
  • No comprehensive expertise
  • Focus on fixing not preventing problems
Strategic IT Partner $36,000
  • Predictable budget
  • Cost effective
  • Just-right capacity
  • IT Innovation
  • Security
  • Future planning
  • Most suitable for companies with 20 or more  computers

 

When you compare the actual costs of each IT approach, it's clear that a Strategic IT Partner offers the greatest benefits to a company for the amount paid. Here is why...

There is another cost that often gets overlooked....the cost of productivity loss from downtime.

 

Cost of Downtime

Many small and mid-sized businesses do not have a solid plan for preventing “bad things” from happening to their computer networks. Some of these “bad things” (server/desktop crashes, firewall crashes, router/switch malfunctions) can take down an entire network for many, many hours. Hopefully, these major issues don’t happen too often. Unfortunately, most business owners don't think that they will happen to them at all. They categorize these rare instances as downtime, but downtime has another hidden component that is possibly even more costly than when the server crashes...the productivity loss of employees.

Downtime is anytime your employees’ performance is negatively affected by your technology. When your employees wait for applications to load on their desktops... that is downtime. When employees wait for slow web pages to load on their computers … that is downtime. When employees wait for pages to print on the printer … that is downtime. When employees have to recreate deleted or missing documents … that is downtime. And, every minute of downtime costs your company money.

Let’s look at an example of average productivity loss from downtime:

 

Cost Of Productivity
  10 Employees 20 Employees 50 Employees
Salaries

3 @ $20,000 = $60,000
4 @ $35,000 = $140,000
2 @ $50,000 = $100,000
1 @ $80,000 = $80,000

 3 @ $20,000 = $60,000
6 @ $35,000 = $210,000
4 @ $45,000 = $180,000
4 @ $60,000 = $240,000
2 @ $75,000 = $150,000
1 @ $120,000 = $120,000
 5 @ $20,000 = $100,000
10 @ $35,000 = $350,000
10 @ $40,000 = $400,000
12 @ $50,000 = $600,000
6 @ $60,000 = $360,000
4 @ $80,000 = $320,000
2 @ $120,000 = $240,000
1 @ $180,000 = $180,000
Total Salaries $380,000 $960,000 $2,550,000
Avg. Hourly Rate $19 / Hr. $24 / Hr. $25.5 / Hr.
20 Min. / Per Employee Of Slowdown Loss 20 min x 10 Employees = 200 min/day
200 min x 5 days/wk = 1,000 min/wk
1,000 min x 50 wks/yr = 50,000 min/yr
50,000 / 60 min/hr = 833.33 hrs/yr
833.33 x $19/hr = $15,833.27 
 20 min x 20 employees = 400 min/day
400 min x 5 days/wk = 2,000 min/wk
2,000 x 50 wks/yr = 100,000 min/yr
100,000 / 60 min/hr = 1,666.67 hrs/yr
1,666.67 x $24/hr = $40,000.08
20 min x 50 employees = 1,000 min/day
1,000 min x 5 days/wk = 5,000 min/wk
5,000 x 50 wks/yr = 250,000 min/yr
250,000 / 60 min/hr = 4,166.67 hrs/yr
4,166.67 x $25.5/hr = $106,250.09 
Total Annual Slowdown Loss $15,833.27 $40,000.08 $106,250.09
2 Hours/ Month Shutdown 2 hrs x 10 employees = 20 hrs
20 hrs x 12 months = 240 hrs
240hrs x $19 = $4,560 
 hrs x 20 employees = 40 hrs
40 hrs x 12 months = 480 hrs
480 hrs x $24/hr = $11,520
2 hrs x 50 employees = 100 hrs
100 hrs x 12 months = 1,200 hrs
1,200 hrs x $25.5/hr = $30,600 
Total Annual Shutdown $4,560 $11,520 $30,600
Total Annual Productivity Loss $20,393.27 $51,520.08 $136,850.09

 

When you add the cost of downtime to the actual labor cost of one of the three vendors we discussed, now you are starting to look at the real cost of your IT.

This is where using a Strategic IT Partner really pays off. Having the ability to analyze your entire IT infrastructure, on a daily basis, and identify the areas that cause downtime to occur, can really cut your IT costs down. 

This is the hidden area that most businesses miss when analyzing their IT situation. Looking at it from a break/fix standpoint misses the mark entirely when the cost of downtime is not taken into consideration. 

The Real Cost of IT with Loss of Productivity

When you add the lost productivity to salaries or support service fees, the actual cost of your IT is surprising.

The Real Costs of IT with Loss of Productivity
  10 Employees 20 Employees 50 Employees

In-House Staff - Salary

Lost Productivity

$106,406

$20,393

$106,406

$51,520

$106,406

$136,850

Total IT Costs

$123,799

 $157,926  $243,256

Managed Services IT Support

Lost Productivity

$25,500

$20,393

$25,500

$51,520

Not cost effective to use this approach

Total IT Costs

$45,893

$77,020  

Strategic IT Partner

Lost Productivity (assuming a 70% reduction in lost productivity)

$36,000

$6,118

$36000

$15,456

$90,000

$41,055

Strategic IT Partner Costs

$42,118 $51,456 $131,055

 

What it Means for Your Future

More and more companies today are recognizing the benefits of shifting to a Strategic IT Partner for their IT needs. Not only is IT one of the most commonly outsourced services due to its complex nature, but when business owners or leadership begin to realize that having the skill sets necessary to manage a broad range of issues and planning in-house isn’t feasible, they begin to rethink their overall approach to IT.

Some of the most common reasons SMBs indicate for engaging with a Strategic IT Partner are flexibility, cost savings, security, and confidence.

Once they’ve made the shift and experienced the short and longer-term value, they learn that unloading their IT pain is an enormous and all-encompassing benefit that allows them the freedom and flexibility to focus on their business and the future.

We define “IT Pain” as the mental or physical suffering, frustration, low morale, lack of productivity, budget problems, downtime, etc. that result from worrying about an organization’s technology and the lack of knowledge or ability to control what the next problem associated with IT will be.

 

What Would an IT Change Mean for You?

When you recognize what the real cost of IT can be and make the decision to work with a Strategic IT Partner, the responsibilities and burdens of your IT shift to the Strategic IT Partner. This shift can help drive your organization’s change through reduced costs, access to top-level talent and experience, best practices, better planning and better overall decision making.

The real cost ot it and the hidden costs associated with it

Proactive IT Management Means Controlled & More Predictable Costs – The cost of running an internal IT department adds up quickly and often does not come close to covering the myriad of issues that can occur. By switching to a proactive model and putting the day-to-day challenges that can crop up into the hands of trusted professionals, your business can realize benefits like fewer unexpected problems and the expenses that accompany those problems.

According to research from Forrester, IT leaders estimate they spend 72% of the money in their budgets on “keep the lights on” type operations and maintenance. The Strategic IT Service model offers a fixed cost-benefit, which results in more predictable IT costs. Through strategic IT services, your business will have access to a team of experts with experience in all areas of IT management. Experts that can not only handle issues that may develop, but also have the expertise to identify technical misalignments, document issues, and clean up the environment to create consistent and timely resolutions to problems and fundamentally help ensure the problems don’t happen in the first place. The job of a competent Strategic IT Partner is to initiate strategies, optimize processes and make decisions to help reduce “keep the lights on" costs through enhanced performance and functionality, thereby reducing costs and eliminating expensive downtime.

Ensure that your organization not only keeps pace with technology, but is also using technology to its advantage – As your company grows, so do the demands you’ll make on your technology. A Strategic IT Partner will work to assess current systems and processes, understand your organization’s objectives and be the strategic partner your business needs to ensure you have the right technology in place to meet your future needs and that technology is working to your benefit rather than creating more hardships for you and your team.

Transferring Accountability to a Trusted Strategic IT Partner provides Flexibility and Freedom – When you unload your IT burdens to a trusted partner, you gain access to an entire team of experts whose focus will be to keep your systems running as securely and efficiently as possible. The worries about how much good talent will cost and concerns about losing their knowledge when they decide to move on and leave your employ can be a thing of the past.

Since a Strategic IT Partner vendor will assume the risk involved in managing your IT operations and has the experience and knowledge base to implement a system that will meet your current and future business needs, you can eliminate risk, uncertainty, and frustration on many different levels.

By taking the burden of IT headaches away from your staff members and freeing them up to do what they do best, a Strategic IT Partner gives you the freedom to focus on your business objectives and the flexibility to move forward with projects or integration's you didn’t have the manpower or expertise to accomplish before. By eliminating the IT pain, your workplace is more productive, and your employees are happier and more effective.

Reduce Risk While Building Strength and Increasing Security – Data security can be a full-time job in today’s environment. Threats to your organization’s security continue to become more sophisticated with time. Mitigating cyber attacks and being vigilant about data breaches requires a high-level skill set. An experienced Strategic IT Partner has the highly specialized resources and knowledge necessary to help your company stay a step ahead of threats and keep your data secure.

A thriving IT landscape impacts every area of a business’ operations in a positive way. If not properly managed and planned for, the real cost of IT can be unreasonable. When you value the business, economic and emotional benefits of a more proactive approach to IT you can begin to shift your thinking and view it as a priority and an investment for not only the current state but also the future needs of your business.   

What Is Your Next Step?

Change is difficult. We understand the emotional pressures making a change can create. That's why we act as your guide and mentor through the decision process. Whether you work with us or not, we'll help you make informed decisions and guide you to a place of confidence. 

Why not start the conversation today. Complete the form below, or contact us 877-715-5652. We'd love to talk to you.

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