OCASIInformation Technology Management and Budgeting: ISAP/HOST Estimates – Part 1

ISAP/HOST Budget Estimates – Hardware and Software

This is the first of two documents to help you estimate the IT costs for your ISAP/HOST application. Part 2 will look at costs for training, technical support and the Internet. This first part focuses on hardware and software. It includes:

1 / An update on recent discussions with CIC-OASIS
2 / Some principles to follow in developing your estimates
3 / What to include and some typical prices
4 / Information on leasing and financing options

1. INFORMATION UPDATE

The OCASI team has had a couple of recent meetings with the OASIS Operations managers and we now have a clearer idea of their thinking on managing the ISAP/HOST budget for 2003-04.

One thing that is clear is that because the ISAP/HOST contracts are contribution agreements and not grants, OASIS will not be administering the IT funds on a Total Cost of Ownership (TCO) basis (although this was the approach recommended by both the Computerization Project Evaluation Report and participants at the MICE-2 Conference).

In other words, OASIS will not be funding you on a “per workstation per month” basis, so you will not have the freedom to reallocate funds within the IT area as you wish. And as with all federal contribution agreements, you will only receive payment for what you actually spend. So you will have to cost out each item and present a detailed IT budget with your application.

We don't know the precise ISAP/HOST allocation for IT costs for next fiscal year, but we do know that it's limited -- and that the OASIS Operations managers don’t want it to exceed a reasonable proportion of the overall ISAP/HOST budget (say 10 percent). And we have been told that the funds for IT are coming from an extra allocation to the Ontario Region’s budget for next fiscal year.

As far as we know, January 7th is still the deadline for the ISAP/HOST applications, but as we understand it, the figures you put in your application will not be “cast in stone”. Negotiations with your ISAP/HOST Counsellor will continue during January and February.

OASIS has not yet prepared the guidelines on IT costs for the ISAP/HOST Counsellors -- and because this whole area is so new to the Operations staff, we would expect considerable leeway for you to be able to adjust the estimates in your application before finalizing next year’s contract.

2. SOME BASIC PRINCIPLES

From our discussions with OASIS, the following are some guidelines that will help you in developing your budget:

  • Most of your ISAP/HOST computer equipment is now over 4 years old. It needs replacing -- and it's clear that OASIS would like you to replace all the hardware and software from the initial Computerization Project in the next fiscal year, if possible.
  • The total ISAP/HOST allocation for IT for 2003-04 is not sufficient to cover "cash purchases" for all IT costs. So OASIS will be willing to fund you to replace your old hardware and software through a leasing plan, to spread the costs over the next 3 years. More on this later.
  • Because of this, you should try to "bundle" as much as possible into an initial purchase agreement -- even if equipment comes from several vendors. Remember that it's possible (although sometimes not easy) to put hardware, software, peripherals, warrantees, installation costs, etc., all on the one lease.
  • Whichever way you proceed, your ISAP/HOST contract is a federal Contribution Agreement and OASIS will only reimburse actual expenditures -- and they'll need to see receipts or documentation for all eligible items.
  • As we’ve stressed in our previous documents, preferably your purchases should flow from an overall IT strategy or plan for your agency which goes beyond the criteria of one particular funder. Because of this, your agency may wish to approach the ISAP/HOST application differently, based on a broader IT strategy. For example, if you choose not to replace all your equipment in the next fiscal year and instead would prefer to pay cash to replace one-third of your computers, you should make your case for this approach -- but remember that this could lead to other problems with aging equipment, multiple operating systems and higher technical support costs.
  • In summary, every agency is an independent organization and you should argue your case based on your specific needs. While it's clear that OASIS would prefer a standardized "formula" to make the job easier, OCASI’s long-standing position is that you should base all funding applications on the needs of your community and the priorities of your organization. However, given the limited ISAP/HOST budget for IT, it is in your own interest to make reasonable and justifiable requests. A saving in one area may allow you to argue for an increased allocation in another.

The next section looks at typical prices for hardware, software and peripherals, including a list of items that might be bundled together and leased to spread the total cost over several years.

3. WHAT TO INCLUDE…. AND TYPICAL PRICES

(a) Workstations and Software

Appendix A at the end of this document shows recent pricing for similar workstations from three different suppliers. Note that:

  • The systems shown represent “low-end” workstations by today’s standards. We would recommend this as the minimum configuration for new equipment. By April 2003, you will be able to buy even more powerful systems at these prices.
  • The prices shown are for comparison purposes and do not include MS Office. As shown at the end of this section, your total cost per workstation will probably be significantly higher than those shown in Appendix A.
  • There is a major variation in prices among suppliers – more than 30% difference between the high and low quotes in Appendix A – so it really pays to shop around. You may be able to get an even better deal from a local supplier, including installation and some technical support thrown in (see “Bundling” later).
  • Systems such as these are more than adequate for ISAP/HOST services. Your overall agency IT plan may lead you to buy higher-end workstations than these – but in that case don’t expect your ISAP/HOST contract to cover all the costs.

Regarding workstation software, increasingly agencies are using powerful database and presentation software. A high-end office suite is essential (e.g., MS Office XP Professional, which includes Access and PowerPoint). Note that:

  • Your existing licenses for Office 97 appear not to be valid for upgrade pricing, since they were the result of a bulk purchase by CIC.
  • Using Dell as an example, to upgrade from MS Works (which comes as standard on their machines) to Office XP Professional costs an additional $518 (plus taxes) per workstation. (Remember that MS Office XP “Small Business” does not include Access and PowerPoint).
  • If you buy direct from Microsoft, Office XP Professional retails for $889 – so it’s probably cheaper (and less work) to buy it with the hardware and have it pre-installed.
  • If you take this approach, ensure that you also receive the MS Office program disks, in case you need to reinstall at a future date – and that you are granted a full software license that will allow you to take advantage of upgrade pricing in future.
  • Although we recommend that you should budget for the full price of MS Office XP Professional in your ISAP/HOST application, agencies that have charitable registration are encouraged to investigate Microsoft’s special pricing for charities. This could save over $500 per workstation -- and you may be able to negotiate to apply this saving towards other IT costs. Please post on the email list if you are interested or knowledgeable about this.

In summary, the table below shows the likely range of costs per workstation (not assuming charitable pricing for software):

ITEM / RANGE OF COSTS
Pentium 4 – 1.80 GHz Workstation (as per specs in Appendix A) – including 17” monitor, 3-year onsite warrantee and shipping (before taxes) / $1,300 to $1,700
MS Office XP Professional / $500 to $900
Total before taxes / $1,800 to $2,600
GST + PST (approximately) / $300 to $400
Total after taxes, per Workstation / $2,100 to $3,000

(b) Servers and Software

Appendix B shows two examples of servers – the Dell PowerEdge 600SC and the 1400SC. There is a wide range of machines available from all the major manufacturers, but these two examples show fairly typical components. While both are considered to be “entry-level”, the higher priced server shown in Appendix B has the following significant advantages:

  • Enhanced performance – the dual processors and greater memory capacity allow for better performance with intense applications; advantageous if the server is to be used as an email server or to house a large database.
  • Redundancy – There are “redundant” hard drives, processors, and network interface cards. If one should fail, the other automatically takes over.
  • RAID Support – The RAID support allows data from the hard disks to be accessed more quickly (and also allows for the redundant hard disks).
  • Power Backup – The UPS controls the server power supply. If the power goes out, the UPS retains enough battery power to begin automatic shut down of the system. Without this, the server would just crash.

As you can see from the examples, the server software is a significant portion of the cost. Your existing licenses for Windows NT Server are not valid for upgrading and again you should budget for the full cost of the current network software – Windows 2000 Server.

The full retail price from Microsoft is $1,176 (+ tax), and in addition you need to purchase a Client Access License (CAL) for each device (e.g. workstation, printer) that accesses the server. Microsoft charges $48 per CAL retail, so that Windows 2000 Server with 5 CAL would cost $1,416. As with workstations, it is normally cheaper to buy the server software together with the hardware. Ideally, you should arrange for the software to be pre-installed.

In summary, the table below shows the likely range of costs for a server (not assuming charitable pricing for software):

ITEM / RANGE OF COSTS
Entry-level server from major manufacturer (similar to “packages” in Appendix B) / $3,000 to $6,500
Windows 2000 Server (with 10 CAL say) / $1,500 to $1,700
Total before taxes / $4,500 to $8,200
GST + PST (approximately) / $700 to $1,200
Total after taxes / $5,200 to $9,400

(c) Other Items and “Bundling”

Given the limited ISAP/HOST funds available for IT in 2003-04, the ideal situation is to combine as many hardware and software items as possible into one financing deal and spread the total costs over 3 years. Estimate the costs based on current demand (e.g. printing volume), number of ISAP/HOST workstations, quality and durability of equipment needed, etc. In addition to the workstations and server costs, remember to build the following into your budget:

  • 3-year onsite warrantees for all hardware
  • Installation and initial set up costs (some vendors have a volume discount for this – e.g. $125 for 1 workstation; $49 each for 5 to 10, etc.)
  • Anti-virus software
  • Scanners
  • Printers (Office-duty lasers, small lasers, inkjets) and toner
  • Surge-suppressor power bars (for all workstations)
  • Hubs for LAN connections
  • Router(s) and Firewall/Router/Email Server software (N.B. Part 2 will discuss Internet connectivity, the Freegate box, etc.)

4. FINANCING OPTIONS

The tables on the following page explain the differences between leasing and financing agreements. Basically, in one (the lease) you don’t own the equipment, whereas in the other (financing) you have taken out a loan to buy the equipment outright and you do own it. From the perspective of OASIS, a lease is probably preferable because the payments become a program expense rather than a capital purchase.

There are a huge number of leasing options and this is where you really have to do your homework. As mentioned earlier, provided the total is above a certain amount, even with different suppliers it’s possible to arrange one lease for most of your hardware and software. This is done through a leasing broker.

When estimating the eventual cost of leasing, you should consider the following:

  • Quoted interest rates can be deceptive. Generally the lowest possible rate is quoted (which is only used for customers with the best credit rating). e.g. Dell quotes its rates based on 9.99% interest, but when you read the fine print, you’ll see that the actual rate could be as high as 28.99%.
  • Similarly, quoted rates are sometimes based on a 48-month term, and monthly payments for a 36-month term would be significantly higher. You should also verify whether or not the quoted monthly fee includes taxes.
  • It’s advisable to call suppliers or a leasing broker in advance and “pre-qualify” your agency, so that you know exactly what your payments will be. Don’t wait till April to do this.
  • You should be able to negotiate a good leasing rate, given that you will have a federal government contribution agreement and can provide evidence of the current year’s ISAP/HOST contract. Also, in most cases, the total value of the lease will be quite attractive to a broker – at least $20,000 even for a small agency and many times larger than that for some agencies.
  • Best of luck! Please post any questions or comments on the information in this document to the email list.

(Disclaimer: Information in this document is for information purposes only. OCASI cannot take responsibility for decisions made based on this information. Contact your CIC Counsellor with specific questions.)

COMPARING LEASE AND FINANCING AGREEMENTS
Lease / Financing / Comments
Down Payment / Generally zero, but common to pay “first and last months” up front / Negotiated with financing company (e.g., vendor, bank, etc.) /
  • A lease does not require a down payment; Financing usually does

Equipment Owner / Supplier / Customer /
  • A key difference is that a lease is similar to a rental (therefore, the supplier still owns the equipment); financing is a loan (therefore, the agency owns the equipment)

End of Payment Period options / Customer purchases for predetermined amount or returns the equipment to the supplier / Customer already owns the equipment /
  • Returning the equipment to the supplier, then leasing new equipment is usually the best option

Upgrading / Don’t own the equipment; therefore can’t make any changes until the end of the lease period, if you then purchase / Own the equipment; therefore, can do whatever you want with it at any time /
  • Sometimes possible to trade in the lease for a new one with higher-end equipment

Sample Leasing Options (from IBM Canada)
Full Payout Lease / Fair Market Value Lease
Retail Equipment Value / $10,000 / $10,000
Down payment / $0 / $0
Payment Term / 36 months / 36 months
Monthly Payment / $340.00 / $311.50
Cost over 36 months / $12,240 / $11,214
Final Payment (if purchased) / $1 / $1,500 (15% of original value)
Total Cost / $12,241 / 12,714
Note: Both of these plans are leasing. Most companies have a leasing option in which, although the legal agreement is a lease, the payments are such that the customer pays $1 to own the equipment at lease-end.

APPENDIX A


APPENDIX B


Comparing Servers

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