Unforeseen incompatibilities that newly installed software might have with the rest of the system could require you to hire someone to patch the problem.
As bothersome as working out solutions to these problems might be, the bigger problem is often finding the money to pay for them. All too often, the money is not in the budget, simply because no one foresaw the potential problems.
The large sums already in the budget often hide this fact. “As much as 85 percent of the budget for technology can be non-discretionary—salaries, benefits, and contractual commitments for service and support,” explains Doug Wiescinski, a partner in the Consulting and Solutions Services Team at the Southfield, Mich. office of Plante & Moran PLLC (www.plante-moran.com). “When you peel back how much of an IT (Information Technology) budget, for example, that the chief information officer or IT director really has any latitude on, it’s usually a pretty small percentage, unless the organization has a major capital initiative underway.”
To avoid getting caught short, Wiescinski recommends a variety of techniques for setting aside money for the unexpected. The first is to create line items for contingencies. “Even though you may have negotiated an agreement with a vendor to help you implement, say, an ERP (enterprise resource planning) system, we recommend strongly putting an additional 5 percent to 10 percent into your budget just to cover any contingencies,” he says.
Another technique for not getting caught short is to put aside money every year to replace aging equipment. All equipment—whether computers, robots, or machine tools—has an expected useful life and eventually needs replacing. Consider a $100,000 robot that is expected to have a ten-year useful life. Wiescinski suggests letting $10,000 accrue each year in the budget so you don’t have to dig into other capital budgets later when you have to replace it. This technique is especially useful for computers and other equipment that usually have short useful lives of less than five years.
Until the equipment becomes obsolete or wears to the point of requiring frequent repairs, it will need periodic maintenance. So plan for it. Although support for most servers, telecommunications equipment and automated machinery will cost 10 percent or 15 percent of the initial purchase price each year, some software and other items can cost as much as 20 percent annually. “If it’s 20 percent over five years, you’re really repurchasing the product,” notes Wiescinski. “Oftentimes, top executives will see the purchase price, but might not understand that there is usually a fairly heavy support cost associated with any capital purchase.”
He adds, however, that service, support and acquisition agreements in technology have a fair bit of latitude, far more than what the vendors might suggest while negotiating them. This is true particularly for computers and some other hardware. Many computer manufacturers have been offering deals on their extended warranties, so you might as well take advantage of them. Another negotiating point is the amount of annual rate increases for service and support. “Most contracts are usually silent on the amount,” reports Wiescinski. “Why don’t you try to limit it to no greater than 5 percent or something similar?”
In looking for a deal, beware of long-term contracts. Although such contracts have the potential to save you money, they are not always to your advantage in leading-edge technology. Competition and technical advances drive prices down tremendously over the years. Look at telecommunications. Avoiding this expense and allocating for contingencies are the best ways of keeping automation running and not letting the budget short-change its productivity.
James Koelsch, [email protected], is an Automation World Contributing Editor.
