Financing IT in the current climate

Over the years I have often written about the potential for far greater use of financing solutions in both the acquisition of IT based solutions and their operations. With many, if not most, of the major IT markets now in the grip of the fallout from the wide-spread global economic panic, now is an opportune time to once again examine what financing solutions have to offer.

For the majority of organisations IT purchases still tend to be funded directly out of capital budgets, frequently with little thought, and even less research, being given to using any other method of payment. Until comparatively recently the concept of “financing” IT solutions has usually meant some variation on the leasing of the hardware, and perhaps the software, deployed in a solution. However, over recent times we have begun to see some new funding packages coming into IT, although mostly for those in the millions of dollars bracket.

A few suppliers of IT finance, notably those of one or two of the larger infrastructure players, have recognised that a large proportion of IT projects now consist of multiple components and phases that usually require significant up front funding and investment. In many circumstances the investment at the start of projects may not lead to direct business (and cost) benefits until months, occasionally very many months, later. For many organisations, this cost/benefit gap can create a major hurdle. In the current economic climate there is every likelihood that such cost/value delivery perception gaps could severely inhibit project approval. It could even significantly delay some projects that have already received the go ahead.

Thus there is a clear need for agile “project financing” solutions to enable organisations to implement IT solutions. This type of financing should enable solutions to be implemented when business conditions / business opportunity indicate, rather than when internal funding becomes available. This approach would make it possible for more projects to pass the deliver fast ROI test, and therefore help businesses move forward in the current economic climate.

I am firmly of the opinion that with the financial markets and national governments making the cost of capital relatively low, there is a major opportunity for agile funding services for IT projects to step out of the shadows. I see great potential for IT-based business transformation projects to deliver serious business value if only the funding can be obtained. I hope that the financing arms of IT vendors and the financial services industry are ready to step in and provide the kick start needed to allow sensible projects to take place rather than be mothballed.
There is little understanding about the possibilities that financing can provide to IT solutions, with only very large enterprises usually having the time to perform any form of research in the area. Clearly there is a need to educate mid- and small- enterprises on the pros and cons of IT financing. In fact the IT vendors, channels and their sales reps could do with such education as well to help their customers make good choices. Equally, with national governments today being so tightly intertwined with the markets it is not beyond the realms of plausibility for government inspired or backed schemes to be sanctioned, or at the very least new tax breaks introduced for a short period to help keep IT, and thus businesses, moving forward.