Funding Big Data Projects Using IBM Global Financing (IGF)
All companies and organizations face the challenge of extracting the maximum return from their capital investments. Flexible financing options can help minimize up-front payments and better align project outlays with the anticipated benefits. Use of optimum financing sources can help accelerate a project’s cash flow break-even point, while helping to preserve cash and maintain existing lines of credit for other strategic initiatives.
Big Data Challenges
The amount of information available to organizations is ever expanding. Customer data, sales information, logistics, and social media are all adding to the data pouring into organizations today. Companies can glean tremendous insight from this information that can help them effectively manage risk, increase business efficiency and allow them to better engage with their customers. Organizations recognize the business requirement but often find that their traditional IT architectures and infrastructures are not up to the challenge. Those companies making the right investments to efficiently leverage this flood of data will be able to obtain a competitive advantage in the marketplace and also directly impact the bottom line.
Today companies recognize the need to invest in the systems and platforms that will allow them to meet future business needs but face a number of challenges:
- The need to conserve limited capital budgets: All businesses recognize the need to spend their limited capital on investments that will directly impact the business. Big data projects can consume a large amount of capital that management feels might be better spent in other areas such as product development or penetrating new markets.
- Managing costs and increasing ROI: Since big data projects are large ticket items, the significant upfront costs to purchase and deploy these systems can impact the measurable short-term ROI effectiveness and have an adverse effect on cash flow.
- Time-to-market: Companies waiting until they can afford to purchase may find themselves at a disadvantage as their competitors move forward. Delays also impacts ROI as any potential gains are deferred
- Managing Legacy Systems: Most companies have large investments in their existing IT applications and infrastructure. Big data projects can require the upgrade or replacement of existing IT architecture that can have a financial and operational impact as systems are retired and assets written off and disposed of.
Big data projects can be extremely complex with a lot of moving parts. These projects involve hardware and software components along with the associated implementation consulting services. The potential high costs and inherent risks of any big data endeavor can make companies leery of investing the necessary capital without a clear view of ROI. Flexible financing can reduce the financial risk component, and can make it easier for the department to get approval from the CFO or other funding sources.
To deal with these challenges many organizations are turning to creating financing options for acquiring the systems and platforms to handle the challenges of big data. Options can include internal financing, external financing, or leasing where title stays with the leasing company.
Leasing can have a number of advantages for companies exploring financing options:
- Conservation of capital: Leasing allows a company to conserve capital for investments in the business rather than the systems required to run the business. Leasing also does not usually require up-front fees or costs.
- Cash flow:Leases can be structured to meet the organizations cash flow or other financial requirements. Also the financial impact through the life of the lease is known up front and payments can be deferred until the system is fully functional.
- Operational flexibility:Technology usually moves in a 2-3 year cycle. Leasing allows companies to take advantage of technical advances without being locked in to platforms that may be obsolete before being fully depreciated. This can help reduce support costs for maintaining aging hardware and/or systems.
- Equipment Upgrades:Leasing provides additional flexibility when system demands require adding or upgrading leased equipment. Lessors can provide optimum financial solutions that can minimize the financial impact of replacing existing systems.
- Asset Disposal:Decommissioning hardware can generate a number of problems of how to safely dispose of existing hardware in a sound environmental and financial manner. Since the lessee does not own the asset the responsibility of properly disposing of the asset while adhering to any regulatory issues will fall to the lessor.
In exploring financing options companies should also consider leveraging external capital to finance their big data purchases. There are a number of factors to consider depending on the cost and expected service life of the asset:
- Cost of Capital: many vendors offer favorable or even zero interest loans for equipment purchases reducing the overall cost of capital and increasing ROI
- Conservation of capital: using outside capital sources to purchase the asset would conserve internal capital and the asset value would be on the company’s books.
- Cash flow:Creative financing can reduce impact on cash flow by using extended payment terms. Careful analysis would be required to determine the overall cash cost and impact on the company’s finances.
- Asset Life:if the company determines that the useful life of the asset might be longer than a lease it should consider purchasing instead of leasing.
IBM Global Financing
IBM Global Financing can assist its customers with big data projects by providing flexible financing options for the hardware, software, and services required. In 2014, IGF was the single largest captive leasing company in the IT industry. As a unit of IBM Credit LLC, a wholly owned subsidiary, IGF has the financial strength and backing of IBM. With an investment grade credit rating IGF obtains funds at below market rates, which results in lower leasing rates for its clients. Many of the top financial institutions in the US are IGF clients. Rather than use their own capital they rely on IGF for the acquisition of the platforms and systems needed to run their businesses.
IGF can provide competitive financing programs for both IBM and non-IBM equipment with a variety of programs and financing options. IGF works with their clients to help increase their purchasing power and maximize return on technology investments. IGF also has global reach and can work with multi-national clients and has operations in more than 55 countries.
IGF can assist companies at the start of any big data initiative spanning the entire life time of the solution. Through asset retirement, acquisition and deployment of big data solutions IGF works with companies to help stretch their budgets, conserve cash and to meet internal financial requirements.
IGF is a leader in disposing of used IT assets. Through its Global Asset Recovery Services (GARS), IGF offers buyback capabilities and disposal in accordance with local environmental laws and regulations GARS manages a logistics operation that optimizes the resale, dismantling and recycling of IT equipment.
Large big data projects can involve a lot of components including hardware, software, and the necessary services to implement these complex big data platforms. IGF offers a variety of leasing and finance options to help meet their customer’s needs. These options can include either loans or leasing programs depending on the asset type and customer needs. IGF can also fold in non-IBM items to a financing program as part of an overall IBM supported project.
IGF hardware leasing offers the customer a variety of advantages:
- Contract Flexibility: IGF offers a variety of lease structures and payment terms that can be tailored to any situation. Payments may be structured on a monthly or quarterly basis, and they can be either level or stepped in a manner to match anticipated revenues
- End of Lease: Each line item on a lease can be handled separately at the end of the lease allowing customers to be able to renew, purchase, or return assets as needed.
- Special Programs: As a part of IBM, IGF offers special programs to enhance its parent’s product offerings. These options can include predetermined upgrade/expansion costs, mid-lease flexibility, and special low-rate financing options.
Acquiring software usually meant a large up-front cost for the licenses and then a 10-20% annual charge for support and maintenance. IGF provides two financing options for software.
- Loans: IGF can provide loans for software purchases based on the customer’s needs. This allows the customer to have ownership of the licenses.
- SaaS: IGF can also finance long-term SaaS contracts giving the client additional flexibility in managing their finances.
On many large projects the actual implementation services can be the largest portion of the project costs. Customers have the ability to roll the services costs into the overall project financing deal. This flexibility can help customers to better manage cash flow and roll the entire system costs into the overall financing package.
IGF also offers other services that enhance the value delivered to its customers.
- Administrative capability: IGF offers lessees the ability to manage their portfolios online using the IGF Customer Center lease management tool. This supports clients managing their leased portfolios from origination to end-of-lease. The customer has access to a complete database of leased assets and associated schedules.
- Portfolio expertise: IGF has remarketing capabilities for used equipment that maximize the value of returned assets resulting in lower lease rates for new acquisitions.
Thorough analysis of capital sources and costs should be done when undertaking large capital intensive projects. Flexible financing should be a critical piece of the BD&A buying process. IGF can help accelerate business value by providing the flexible financial solutions that allow companies to quickly implement big data solutions. As the number one IT captive financier and over three decades of experience, the IBM Global Financing team has a thorough understanding of credit and technology risk and extensive financing expertise.
As companies embark on big data and analytics projects IGF is ready to serve their needs with comprehensive financing options that can enhance business value while meeting business objectives.
 Based on 2014 Monitor 100 Ranking of US Companies