Chapter 4: Knowing What to Get|
How do you analyze costs and establish a budget?
In the process of making the various decisions covered so far, you have amassed a lot of information that relates to the approximate costs of your solution. It's now time to develop some tangible cost estimates.
When establishing a budget for your technology purchase, watch for hidden costs. Don't let "unanticipated costs" be part of your vocabulary. Plan for the worst, and your results will be best. The initial technology budget should contain adequate funds to support key tasks for the level of implementation envisioned. The initial purchase price is typically only a fraction of the full cost to implement and operate a system. In addition, how funds are acquired (e.g., bonds, maintenance and operational funds, donations, etc.) and applied (purchase, lease, lease/purchase) has an impact on the level of acquisition possible. There are several key elements of anticipated costs to consider. Some are presented in Table 4.1 below.
Again, resist the temptation to think short-term. The annual maintenance and operations budget is typically appropriate for most budgeting categories listed in Table 4.1. However, hardware purchases and facility acquisition/renovation may be appropriate for longer-term capital financing, which often is budgeted separately. When considering costs of a new or upgraded system, remember to think in terms of your long-term investment. Life-cycle costs, which include the expenses to support and maintain a system over its expected life span, are far more important, useful and realistic for planning than simple implementation costs.
Include in your estimated budget both short-term purchases as well as long-term maintenance and operations.
Once the gross amount of anticipated costs is estimated, you need to start thinking about potential sources of funding to meet those costs. Education organizations often have a number of possible financing options, including some unique ones. School districts may be able to fund certain initiatives through bond sales. Universities may have endowment funds from which to draw. Additional sources include grants, foundations, donations, joint projects, etc. If any of the financial resources have accompanying restrictions and conditions, they should not be in conflict with the organization's objectives and strategic plans. Wherever the money comes from, the financing method should be appropriate for the expenditures being made. For example, issuing 15-year bonds to purchase hardware with a life expectancy of 3 to 5 years may not be appropriate, unless there is a built-in plan to continue to make upgrades and purchases throughout the life of the bond.
Education institutions have also leased equipment. With this arrangement, maintenance can be built into the contract. Also, the cost of the equipment can be spread over the life of the lease. Some vendors offer classroom computers on a three-year lease, with a one dollar ($1) purchase option at the end of the lease. An additional advantage of leasing at local education and post-secondary institutions is that when the organization has to commit to a three-year lease (for example), such an ongoing line-item in the budget might more easily be extended upon completion of the lease so that hardware and software resources can be continuously replaced as they age.
Comparing Costs to Benefits
Estimating benefits is the most difficult aspect of this analysis. While technology systems seldom actually reduce the organization's cash outlays, they may free up staff time previously spent on unproductive tasks (a value that can be estimated) or provide additional time for more important tasks, such as instruction. Because of the increased efficiency of an organization, there may be a dramatic improvement in staff morale (which cannot be overestimated) by allowing staff to do what they were trained to do (e.g., teaching students or analyzing information, rather than transcribing information or verifying data on forms).
Another benefit to acquiring a new technology system is that maintenance costs are often lower than those for the technology being replaced. Converting from existing systems to new ones may provide the opportunity to roll current costs for maintenance and support into purchases of hardware and software with warranty periods and lower future maintenance and support charges. Creative funding plans may be possible using reductions in current maintenance costs to offset purchase costs. Some districts have found that by replacing old telephone systems with new ones that provide better service and connectivity, they have not only reduced their annual phone bills, but also received more capacity and expanded capabilities (such as putting a telephone in each teacher's room). When technology to perform a service, such as registration, replaces a service that is currently being outsourced or done manually, the ROI may also be reached in a much short time.
Thus, when we now look at the phrase "Comparing Costs to Benefits", we know to ask whether the software we purchased has affected the teachers and students in our school. For example, have there been any changes in the instructional program? In test scores? In other areas? It is likely that the answer to such questions might very well be a resounding 'yes'!