Are Warranties Warranted?

Boilerplate equipment warranties are giving way to negotiated agreements that give institutions the ability to manage their IT operations more efficiently and strategically.

• By Rama Ramaswami
• 04/03/12

Whether you're purchasing hardware for a major institution, or springing for a flat-screen TV at Best Buy, it's a question we've all wrestled with: Do you buy the peace of mind that comes with an extended warranty? And is it worth the bite it takes out of your wallet?

Increasingly, the decision for colleges and universities has become significantly more complicated than that. These days, IT directors are looking at warranties not as insurance against equipment failure, but as one more tool in a broad strategy for managing inventory, cutting costs, and streamlining in-house IT processes.

The warranty landscape is changing, too, with boilerplate warranties becoming less and less compelling. "We're seeing fewer warranties come into play than ever before," says Brian Young, vice president for IT and CIO at Creighton University (NE). "A lot of vendors offer limited services. Warranties and turnaround times are a lot more restrictive these days, especially if you want quick turnaround."

Other factors are playing a role, too. There was a time, for example, when some institutions would be paid by vendors for in-house repairs to student devices that were under warranty. "The days of campuses having a repair facility for student machines are waning," explains Grant Crawford, CIO of the Midwestern Higher Education Compact (MHEC), a regional interstate organization that promotes cooperation and resource sharing in higher education. "There's so much gear out there and so many different devices that students bring to campus. Campuses have to worry more about keeping their network up and secure than they do about repairing machines."

As IT infrastructure becomes increasingly complex, many colleges and universities are analyzing their warranty needs according to a variety of factors that include equipment lifecycles, reliability statistics, and uptime criticality. And, more and more, they are eschewing standard agreements in favor of negotiated warranties that address their strategic needs.

The ability to negotiate specific warranty terms is more common--and easier--than most people think, especially in these lean economic times. "When you do bulk buys, there are lots of options for negotiating with vendors," says Crawford. "It's not too hard to get vendors to go for a two- or three-year warranty instead of one."

He also recommends buying some spare parts. "You can then swap them in and do the replacement yourself," he notes. "It's far cheaper than buying any type of warranty. And the vendors know that. You can talk turkey with them and make sure you can store some spares on-site."

It's an approach that works well for Coppin State University (MD). "We keep some critical components on the shelf, worth about $5,000 to $6,000 per year," notes Ahmed El-Haggan, vice president for IT and CIO. "But if anything requires on-site programming, the vendor comes in and does it."

Deciding how many spare parts to keep in house is a balancing act, though. Invest too much and you may end up losing money. "A warranty can be a way to keep up with technology as opposed to keeping obsolete items on the shelf," explains Young. "In the case of a hardware-based telephone switch, for example, you'd buy the warranty because it doesn't make financial sense to buy the part and keep it on the shelf gathering dust. Technology changes so fast that it won't be useful four years later."

Reliability Comes First
The goal of most IT shops is to achieve five nines uptime or better. No matter how good a warranty, it cannot make up for a shoddy product that breaks. In purchasing equipment, it's important not to put the cart before the horse. Identify the most reliable products first, and worry about the warranty afterward.

If it's a quality product, moreover, the vendor is usually prepared to stand behind it. Take advantage of that. "Vendors will tell you their equipment lasts forever and will never break, so ask for a warranty extension," advises Crawford. "It's a fairly low-cost thing for them to negotiate in a contract."

No matter how good the equipment, though, its useful life is probably limited due to the sheer speed of technological innovation. Maintaining out-of-date equipment isn't smart, nor is buying long-term warranties for equipment that won't stay the course. At the same time, budgets don't always permit quick replacement, which means the costs of maintenance and replacement have to be monitored and balanced on an ongoing basis. 

"We buy hardware with one to three years of maintenance usually included," says Terri-Lynn Thayer, assistant vice president and deputy CIO at Brown University (RI). "We haven't ever tried to get additional years through negotiation. Sometimes the vendor will jack up the price in the fourth year, and then you might as well replace the equipment."

Brown is very focused on its refresh cycle for certain types of equipment. For example, the university will downgrade the type of maintenance contract on older equipment with few years left in its lifecycle. "We're trying to be much more formulaic and deliberate about those decisions, and our capital planning is now based on lifecycle considerations," says Thayer.

The school also utilizes different levels of maintenance agreement based on equipment's relative importance. "For disaster-recovery purposes, we have assigned everything a priority rating of 1 through 4," says Thayer of the hardware on Brown's IT data floor. "If something is priority 1, it is a high-priority service for which we have provisioned differently. In those cases, it makes us more resilient to a hardware problem."

Disaster-recovery time is a critical component of Brown's maintenance contracts. "Our recovery-time objectives are all specified," notes Thayer. "We specify a maximum allowable downtime for each service. That affects the maintenance service we get."

Identifying your school's mission-critical operations--and the equipment that supports those operations--is key to putting together the maintenance contracts you need at a price that makes sense. And those priorities will differ from institution to institution.

Young, for example, cites the patient-care applications and systems at Creighton University Medical Center. "We need very quick turnaround in terms of our warranties, just because of the nature of healthcare," he explains. "For critical patient-care systems, the turnaround time can't be two days--it has to be hours, or minutes in some cases."

Even for noncritical applications, evaluating the need for equipment warranties can be a useful exercise, allowing IT staffers to "really take a look at some key questions," Young adds. "If it breaks, can you afford to replace it? Is the technology going to be handled roughly versus just sitting in a controlled environment? If things have been running well without issues, do you really need an extended warranty?"

It's also essential to hold vendors accountable for warranties. "You have to make sure they meet the language of the warranties," emphasizes Young. "If they say four hours, it should be four, not four and a half. You have to hold their feet to the fire. That's a failure I see in a lot of IT shops."