A short-term strategy with a potentially significant financial impact

For many private equity firms, the current economic climate has increased attention on operational improvements within their respective portfolio companies.  One specific target for private equity firms is IT Asset Management (ITAM)—the discipline of managing hardware, software, vendor contracts, and other IT assets throughout the asset lifecycle from procurement through decommission. 

IT Asset Management initiatives can produce significant financial and other benefits:

• Cost savings—in many cases, within a short time frame.  According to Gartner, a company that systematically manages the IT asset lifecycle can reduce costs per asset by as much as 30 percent in the first year. 
• Payback within 12 months, and sometimes sooner especially when targeting software.
• Transparency of IT hardware and software costs.
• Reduced risk of non-compliance; historically, audits that result in software non-compliance yield a $150,000 fine per infringement.
• Greater IT Help Desk service quality.

The importance of accounting for IT assets.

Many companies do not have an accurate account of their IT assets, much less an understanding of how these assets are configured or their cost structure over time.  Often, asset “records” are a mix of disparate spreadsheets or even tribal knowledge. A company that is unable to account accurately for its IT assets cannot quantify the impact of IT asset shrinkage or the waste of redundant software licenses.  For example, various studies have revealed that most software licensing is oversubscribed, on average, by 15 to 25 percent; for some companies, that figure can be as high as 40 percent. 

Addressing this issue can translate into immediate bottom line cost savings and have a direct impact on EBITDA.  One creative software solution is for a private equity firm to enter into an enterprise level software agreement (e.g., with Microsoft) that encompasses all of its portfolio companies, leveraging this higher quantity to drive down costs for all entities. 

Key questions to ask your portfolio companies.

Improving ITAM processes is a specific strategy that can drive immediate, short-term benefits without disruption day to day operations.  To understand if your portfolio company has the potential for cost savings or improved efficiency, ask your portfolio companies these questions.

Hardware:

• Do you know when you have lost, misplaced, or moved assets?
• Can you ensure security in the event an asset is stolen or lost?
• Do you have a centralized hardware asset inventory?
• What percentage of hardware assets will need to be replaced in the next 12 months?

Software:

• How strong is your software license usage model for a particular software vendor?
• Do you perform software metering?
• Are you over or under licensed? 
• Is your software up to date?

Licensing, Contracts, and Vendor Management:

• Do your maintenance contracts match the demands/requirements of your organization?
• Do you have multiple contracts for the same software?
• Do you track hardware warranty information?
• Do you have service-level agreements with vendors?
• How do you enforce warranties?

Regulatory and Compliance:

• Are you compliant with all rules and regulations, for both software and hardware?
• Are you ready for a software audit?
• Do you dispose of hardware legally?

Total Cost of Ownership:

• Do you have baseline spending for a particular asset category? If so, how do you benchmark against the industry/competition?
• What is the Total Cost of Ownership for a particular asset category?