Buy new communications technology? Good question: in which Shakespeare's Hamlet mulls over yet another dilemma.

To buy or not to buy, that was the question. In considering new voice, data and video systems for Elsinore Castle, Hamlet found it quite difficult to decide whether leasing might not just be the better option.

To complicate matters, he had three options: He could buy, which meant that he would still have the system long after its useful life. He could lease, which meant that if technology changed, he would still be stuck with the payments. Or he could agree to a new financial solution that would allow the castle to use the new equipment now, and then move to newer technology when it becomes available, without having to continue paying for the old stuff.

What to do?

Before making that decision about communications equipment, though, Hamlet--and others in a similar quandary-must weigh the costs of each acquisition method in detail. Some of these costs are clear and defined, and others not so obvious--for example, the kinds of costs that are hidden in salaries, disguised in flattened productivity and incurred when opportunities are lost.

Consider acquisition costs. If you're buying an item outright, you're probably paying for it with cash that you could be reinvesting, or with loaned cash that has interest expense attached to it.

Consider installation/disposal costs. Will the used system have enough residual value to at least cover these when the time comes to sell it?

Consider the cost of time: administration time for selecting technology and working with vendors on each new go-around. Also, communications equipment, like information technology (IT) equipment, usually requires staff training--most definitely an expense item. And what about the cost of periodic upgrades? Furthermore, administrators will be required to manage the maintenance contract and be prepared to deal with the finance company at term expiration in negotiating a buyout or turning in the old equipment.

Consider maintenance. Quite often the main risk is not in the loss of one handset, router or video connection, but in the possibility that if one goes, they all go. Regular maintenance can help prevent that. If you need help, how fast will it get there? Don't forget, lease agreements might or might not include a maintenance feature.

Consider human nature, particularly when it comes to procrastination. When the finance company comes to you near the end of the lease term and offers what you consider an unfair buyout price, will you be forced to accept it because there isn't enough time to acquire and put another communications system in place? You might need a minimum of six months to select and secure a new system. If you don't allow enough time for this decision and the resulting installation, you will probably end up paying more than you should just to keep your facility functioning.

Consider opportunity costs. If you pay cash upfront for a system, you deplete working capital; the money will not be available for other opportunities. Consider the financial implications of this. How will it affect your organization's P&L? How will it affect the balance sheet? What are the tax implications?

Research has been done on the "total cost" issue. A few years ago the Texas Department of Information Resources studied leasing vs lease-purchase vs outright purchase of IT for its state agencies. (Although the study focused specifically on computer equipment, most industry observers would include communications equipment in this category.) The study noted that the cost savings from a true lease cannot be determined accurately if one simply compares the price of the lease to the price of the equipment. In an example the study used, the cost for the outright purchase of one terminal was $4,502.31, the cost of a lease-purchase was $4,461.16 and the cost of the lease was $4,727.60.

And the winner?

In fact, the study did not declare a winner. It concluded that, if done for the right reasons, leasing could be an efficient and cost-effective alternative to purchasing. It notes, for example, that leasing new IT equipment creates savings and efficiencies simply by its greater functionality compared to the old equipment. However, the Texas study did not address some issues that point even more clearly toward leasing and lease-purchase. There was no discussion, for example, of the tax implications--specifically, possible deductions. Payments are treated as an operating expense and could offer the opportunity for off-balance-sheet accounting. They can also preserve credit lines and working capital. Accountants who put a sharp pencil to the challenge agree that when you factor in all costs and benefits, the monthly payment option is usually less expensive than the front-end purchase.

Another issue to consider is future flexibility. If you acquire a "generation One" system, will it be difficult for you to acquire "generation two" when it appears in two or three years? The accelerating rate of change in IT makes this a very real prospect. When your new system approaches product obsolescence, do you want to own it at that time, or do you want to tell the vendor to "take it away" and then select a new, state-of-the-art system?

A colleague of mine is fond of saying that there is only one technologic product that a company should buy: flexibility.

New financial programs allow you to fine-tune your decision. Allowing you to rapidly analyze all the cost considerations, hidden and otherwise, computer software is available that can guide you toward the best decision for your organization.

Although Hamlet did not have these software capabilities, after indulging for some time in the "pale cast of thought," he resolved his dilemma. Given the rate of technologic change in the Denmark of his time, he concluded he would not need to replace the castle's new communications system for many years. But, just to be safe--one never knows when new "must-have" communications technology might emerge--he opted for a financing program that gave the castle an up-to-date system with flexibility throughout the term of the agreement. (The ever-helpful Polonius worked out the numbers as he hid behind the curtains.)

All's well that ends well. Hamlet could now turn his attention to more eternal concerns.

Dan Gregory is vice-president of marketing for TAMCO, Clearwater, Florida, a communications asset management firm. TAMCO uses a software program called Comparative Cost Analysis[C], developed by Final Analysis, Inc., which gives companies the ability to analyze various methods of acquiring communications technology according to generally accepted financial principles. For further information, contact TAMCO, 311 Park Place Blvd., Suite 100, Clearwater, FL 33759; phone [phone]; e-mail [e-mail]; or visit www.tamcocorp.com.