What is the current situation your IT department has on its IT equipment - some might be quite robust, some quite fragile? When damage or breakages do occur, is it cost effective to repair the hardware or replace it?
This can be a difficult question to answer and will often depend on the actual hardware in question, how it contributes to the ongoing operation of the IT department, and its timeline to redundancy.
However, there is a simple formula you can use to assess whether it makes better general financial sense to repair or replace broken or damaged IT equipment.
First, you must clearly define four key figures that will form the basis of the formula:
What is the salvage value?
Some broken IT equipment can be on-sold as parts or to another organisation that is willing to repair it. The salvage value can be subtracted from the replacement cost but will depend on the type of IT equipment you’re assessing and the nature of the damage or malfunction.
What is the disposal cost?
If the damaged equipment has no salvage value, it might cost you money to dispose of it. This can be of concern for large, heavy equipment such as computer servers and printing stations. The disposal cost will need to be considered in the repair or replace formula.
What is the repair cost?
Of course, much depends on how much the hardware in question will cost to repair, and whether it can be restored to full working order with acceptable reliability. If the IT equipment you’re assessing has a history of malfunction and repair, it may be time to replace it with a more efficient model.
What is the replacement cost?
If you choose not to repair the hardware, then you’ll need to know how much it will cost to replace it with a similar machine. This is a good opportunity to check the market for new technology that may be more efficient or offer extra functionality than the old hardware.
The repair-vs-replace formula
Now that you have defined the four key values above, you can use them to calculate whether it makes better financial sense to repair or replace the equipment.
First, subtract the disposal cost from the repair cost to find the repair value. If there is no disposal cost, then you can use the repair cost as the repair value.
Next, subtract the salvage value from the replacement cost to find the replacement value. Again, if there is no salvage value you can use the replacement cost as the replacement value.
Finally, subtract the repair value from the replacement value.
The equation should look like this:
Repair cost – disposal cost = repair valueReplace cost – salvage value = replacement valueReplacement value – repair value = $+/–
If the result is a positive number, then it’s cheaper to repair the item. However, if the result is negative, then it’s cheaper to replace the equipment.
Is there an alternative to repair or replace?
The short answer is yes. Many technology suppliers are adopting a device-as-a-service model. This means that rather than purchasing the hardware you need, you pay the vendor a subscription fee to provide and manage your devices. In most cases, repair and replacement becomes the vendor’s responsibility, and you can go back to focusing on delivering the best possible outcomes for taxpayers.