Computer vs. Lease

Lease vs. Purchase

Guidelines for Lease vs. Purchase of

Information Technologies

Department of Information Resources

Austin, Texas

May 1998

Acknowledgements

Lisa Lewis, Dell Computer Corporation

Denise Demers, Dell Financial Services

David Lynn, Dell Financial Services

Joe Pucciarelli, Gartner Group

Chip Gliedman, Giga Information Group

William Martorelli, Giga Information Group

Shama Gamkhar, LBJ School of Public Affairs

Kurt Schlegel, META Group

Michael J. Reilly, MLC Group, Inc.

William Slaton, MLC Group, Inc.

Jane Haney, Texas Workforce Commission

Department of Information Resources

Post Office Box 13564, Austin, Texas 78711-3564

Tel: (512) 475-4700 / Fax: (512) 475-4759

http://www.dir.state.tx.us/

Contents

Executive Summary

Introduction

Leasing, Purchasing, or Lease-Purchasing

Leasing Strategies

Appendix A: Cost Analysis using Present Value

Appendix B: Sample Vendor Selection Checklist

Appendix C: Sample Lease Contract Negotiation Checklist

Appendix D: Leasing Specific Types of Equipment

Appendix E: Additional Resources and References

Endnotes

Executive Summary

Purpose

The Department of Information Resources (DIR) conducted a study of the issue of leasing versus purchasing information technologies as directed by the General Appropriations Act of the 75th Legislature. One of the Legislature’s requirements was the development of guidelines for making the lease versus purchase decision to be used by state agencies in evaluating cost alternatives. This paper presents the guidelines DIR has developed as a result of the study.

Issue

The rate of technology change is increasing, with an emphasis on client/server technology, faster system development, and shorter life cycles. This has led to spiraling information technology (IT) budgets, driving the need for a re-evaluation of IT management issues. Organizations must find new ways to accommodate technological change. Leasing has recently emerged as a feasible,...