Beyond practical considerations such as evaluating the need to invest in infrastructure improvements, process implementation, and increased operational performance, it is important to understand which contracting model best fits a technology and innovation project — one that will make the company more competitive in its market while taking into account other factors that can also […]
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Beyond practical considerations such as evaluating the need to invest in infrastructure improvements, process implementation, and increased operational performance, it is important to understand which contracting model best fits a technology and innovation project — one that will make the company more competitive in its market while taking into account other factors that can also impact the company’s numbers and results.
This material aims to clarify sensitive points and facilitate decision-making for managers, considering not only project demands but also the impact those projects have on the company’s financial results.
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Introduction
Before discussing contracting options and their impact, we must understand some important concepts in business management and accounting that are essential in this context.
When we talk about company results, it means there are accounting criteria that will be used as a reference for presenting those results in a rigorous and organized manner.
Some important accounting terms and concepts used in presenting company results will be covered here to provide a better understanding of the impact that corporate investments generate — and consequently how they appear in the company’s financial statements.
You, as a project manager or IT manager, may be wondering what all of this has to do with acquiring or leasing a system — the core topic of this article.
– After careful analysis, we concluded that the answer to that question is everything.
Yes, it is the project manager’s responsibility to understand and present to decision-makers how the deployment of a project needed to improve operational and competitive efficiency will impact other areas of the company — including finance and accounting.
Some of the responsibilities of managers and project managers are well known and are carried out automatically day to day — but for better professional performance and stronger results, these professionals increasingly need to be multidisciplinary. Being an excellent technical professional or a great manager is not enough if sensitive business-wide issues go unnoticed.
The accounting dimension alone represents an extremely important part of the corporate world, as it is how companies are evaluated in the market — which can determine success or failure in, for example, capital raising activities.
Understanding this financial and accounting context is very important because, beyond an enormous tax burden — one of the highest in the world — Brazil also carries some of the highest interest rates, which frequently makes project implementation unfeasible.
Key Concepts for Company Results Reporting
Let us begin by listing some terms that are not common for those outside the administrative domain but are vital for a company’s financial health.
Net Profit
This is the final result of all company operations, including all operating expenses, production costs, administrative expenses, taxes, and interest paid on debt.
It is the amount that truly “remains” for the company after all obligations have been met. It is a key indicator of company profitability and one of the primary figures monitored by investors.
Gross Margin and Net Margin
Gross margin is the difference between total sales and the cost of goods sold, divided by total sales. Net margin is net profit divided by total sales.
Both are indicators of how efficiently the company generates profit from its sales. The higher the margin, the more efficient the company.
Return on Equity (ROE)
This is an indicator of how efficiently the company generates profit from shareholders’ invested capital.
It is calculated by dividing net profit by shareholders’ equity. The higher the ROE, the more efficiently the company uses shareholders’ money to generate returns.
Current Ratio
This is an indicator of the company’s ability to pay its short-term obligations. It is calculated by dividing current assets by current liabilities.
A current ratio greater than 1 indicates that the company has sufficient assets to cover its short-term obligations.
Debt-to-Equity Ratio
This is an indicator of the company’s level of debt relative to its shareholders’ equity. It is calculated by dividing total debt by shareholders’ equity.
The higher the debt-to-equity ratio, the greater the financial leverage of the company, which can increase risk for investors.
Interest Coverage Ratio
This is an indicator of the company’s ability to pay interest on its debt. It is calculated by dividing earnings before interest and taxes (EBIT) by interest paid.
The higher the interest coverage ratio, the more capable the company is of meeting its interest obligations.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a financial indicator that represents a company’s earnings before interest, taxes, depreciation, and amortization.
It is used to analyze and compare profitability across companies and industries, as it eliminates the effects of interest payments from financing contracts and accounting figures such as depreciation and amortization.
This indicator makes it possible to assess how much a company or industry is able to generate from its core activity, excluding loans and taxes.
EBITDA is a crucial financial indicator that reflects the company’s ability to generate cash. It provides a transparent view of the company’s financial reality, allowing an assessment of whether the company is improving its competitiveness and efficiency year over year.
In the event of capital raising and financial leverage for technology implementation or improving the company’s market performance, a positive evaluation of these indices by financial institutions is fundamental to the success of the credit operation.
Risk and Feasibility Analysis
In addition to financial indicators, it is also useful to include a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) — a widely used corporate planning tool for strategic planning.
- Strengths: Internal advantages the company has over competitors. This can include product quality, good customer service, financial strength, and other positive factors.
- Weaknesses: Internal disadvantages relative to competitors. Examples include high production costs, poor brand image, inadequate facilities, and a weak brand.
- Opportunities: External positive factors that can enhance the company’s competitive advantage. This may involve shifts in customer preferences, competitor failures, and other opportunities.
- Threats: External negative factors that may put the company’s competitive advantage at risk. These can include new competitors, loss of key personnel, and other external challenges.
The SWOT analysis is a valuable tool for evaluating the company’s internal and external environment, enabling informed decisions and the development of effective strategies. It was created by American researcher Albert Humphrey in the 1960s and 1970s, using data from the largest U.S. companies.
This technique helps position the company within the current landscape and plan for its future, correcting potential operational flaws that could jeopardize the company’s market competitiveness.
Another important consideration is the depreciation of acquired assets such as cameras, computers, printers, and other technology equipment, as the devaluation of these assets will impact the company’s results and balance sheet.
Depreciation is an accounting concept and does not represent an actual cash flow. It is a way of recognizing that the company’s tangible assets lose value over time due to use, wear, or obsolescence.
Invest in Technology or Contract as a Service?
What do managers and project managers need to know before making the best decision on how to deploy projects within their company?
The “As a Service” Model
“Pay as a Service” is a business model in which a technology solution is offered not as a product, but as a service accessible over the internet.
The client pays only for the use of the solution, without needing to purchase licenses, install software, or maintain its own infrastructure — the latter being a particularly sensitive issue to analyze at the time of deployment.
This model brings advantages such as cost reduction, flexibility, scalability, and constant updates.
In recent years, the concept of project deployment has been transforming, especially when it comes to infrastructure and equipment.
The “as a service” model is a growing trend in the technology market, as it allows companies to focus on their core business without worrying about technical, operational, or financial issues related to acquiring technology equipment.
In addition, the “as a service” model fosters innovation, collaboration, and the digital transformation of businesses.
It is increasingly common for companies to choose to pay for specific services rather than make large upfront investments — because in addition to the initial deployment cost, there is also the devaluation and obsolescence of systems, given how difficult it is to keep pace with the speed of technological evolution.
There is still some market resistance to equipment leasing, and our intention with this article is to highlight the positive points that should be considered before executing a project that has often sat on hold for lack of resources — and that could have been executed without major upfront investment.
What began only with software offerings like Adobe or streaming services like Netflix is now available for general equipment such as servers, printers, cameras, and even vehicles.
Automakers already offer their vehicles for lease — instead of purchasing from the dealership, the client signs a lease agreement for a set period, then simply renews the contract or leases another model, paying only for use. In this case, the vehicle’s depreciation does not affect the client — which is a significant advantage, since a pre-owned vehicle loses at least 25% of its purchase value in the first year of use alone, and the used market follows no fixed rules, meaning you could lose even more depending on the urgency of the negotiation.
In this context, we can draw a parallel to illustrate how system leasing can be an attractive option for companies to finally move forward on those important projects that have been sitting in a drawer for lack of resources.
Contracting the execution of projects for Technology Implementation as a Service is a task that requires managers to understand fiscal, accounting, and results-related issues — including knowledge of asset depreciation and maintenance costs.
Benefits of the “As a Service” Model
To better understand the benefits of “As a Service,” let us list some sensitive points to be analyzed so that managers can make the most assertive choice when contracting a project.
1 – Reduced Upfront Investment: Unlike acquiring a solution or system outright — which results in a significant initial investment — contracting as a service (As a Service) allows the system to be deployed and paid for monthly based on usage only, drastically reducing the upfront investment and directly impacting the company’s results in the fiscal year.
It is important to remember that both the acquisition of assets (CAPEX) and operating expenses (OPEX) directly affect the company’s results, as they are accounted for and deducted from gross revenue at different times.
2 – Access to Cutting-Edge Technology: Companies operating under the “As a Service” model have access to advanced technologies without the need for high upfront investment.
3 – No Maintenance Costs: When a system is contracted as a service, maintenance and all services required to keep the system running are included in the monthly fee. This eliminates additional fixed maintenance expenses and ensures the system operates correctly.
4 – Full Warranty: In the “As a Service” model, equipment is covered by warranty throughout the entire contract period.
5 – Tax Advantages (Tax Reduction): Contracting services can offer tax advantages — including the elimination of ICMS differential tax (DIFAL), elimination of tax substitution (ST) incidence, and eligibility for PIS/COFINS tax credits on installment payments.
6 – Eliminates Losses from Depreciation and Obsolescence: When a company acquires durable goods such as technology equipment, the asset depreciates over time and eventually becomes obsolete, requiring the company to replace it with new investments. Good predictive maintenance can reduce equipment depreciation and lower corrective maintenance costs.
7 – Flexibility and Scalability: The “As a Service” model allows companies to quickly adjust their services to meet changing business demands.
The simplest annual depreciation rate we can apply is calculated using the straight-line depreciation method — dividing the equipment’s value by its useful life (typically the manufacturer’s warranty period).
For example, if a piece of equipment costs R$ 60,000.00 and has an estimated useful life of 3 years, the annual depreciation will be R$ 20,000.00 per year.
In this context, we can observe how advantageous it can be to contract the same Technology as a Service — since the equipment was not purchased but only paid for by usage, depreciation and devaluation are the service provider’s responsibility. This also allows for fleet upgrades and technology replacement whenever necessary, simply by amending the original contract.
Some important considerations must be taken into account when a manager or project manager needs to decide on how to contract services or acquire a given system — noting that there is no right or wrong answer, only different contracting options. Depending on what the company seeks, purchasing the system outright is also a viable option.
Technology Acquisition
Technology acquisition is a strategic option that many companies consider, especially when they have sufficient financial resources and believe the investment will yield significant long-term returns.
This process involves purchasing technological assets or infrastructure that the company will use to improve its operations.
Purchasing technological assets requires a substantial upfront investment. This outlay can be challenging for smaller companies or startups that do not yet have a stable cash flow. Additionally, by owning the assets, the company is responsible for all required maintenance and updates.
Similar to vehicles, the value of technology assets can depreciate rapidly. This depreciation can be problematic if the company plans to resell the assets in the future. Purchasing technology assets may not offer the same flexibility as the “as a service” model. If the company’s needs change, it may find itself locked into assets that are no longer appropriate.
Acquiring and managing technology assets can divert time and resources from the company’s core business. Purchasing technology assets may also limit the company’s ability to innovate and quickly adapt to technological change.
Therefore, before deciding to purchase technology assets, it is essential for managers and project managers to carefully consider these factors. They must assess whether the purchase aligns with the company’s long-term strategy and whether the benefits outweigh the potential costs and challenges.
Benefits of Equipment Acquisition
Equipment acquisition is an option many companies consider, especially when they have sufficient financial resources and believe the investment will bring significant long-term returns.
Here are some important aspects to consider:
Upfront Cost: Acquiring equipment requires a significant initial investment. This can be a challenge for smaller companies or startups that do not yet have a stable cash flow.
Maintenance and Updates: When you own the equipment, you are responsible for all required maintenance and updates. This may include hiring additional technical staff and the need to upgrade equipment as technology advances.
Depreciation: Like a new car, the value of technology equipment can depreciate rapidly. This can be a problem if you plan to resell the equipment in the future.
Flexibility: Acquiring equipment may not offer the same flexibility as the “as a service” model. If your needs change, you may find yourself locked into equipment that is no longer suitable for your business.
Core Business Focus: By acquiring equipment, the company must dedicate time and resources to managing those assets, which can divert focus from the core business.
Innovation and Digital Transformation: Acquiring equipment may limit the company’s ability to innovate and quickly adapt to technological change.
Therefore, before deciding to acquire equipment, it is important for managers and project managers to carefully consider these factors. They must assess whether equipment acquisition aligns with the company’s long-term strategy and whether the benefits outweigh the potential costs and challenges.
Furthermore, it is crucial to consider the impact of depreciation and maintenance costs when calculating the return on investment.
Legal and Contractual Aspects
When deciding between equipment acquisition and the “as a service” model, it is crucial to consider the legal and contractual aspects associated with each option.
In equipment acquisition, the company becomes the owner of the assets and has the right to use them as it sees fit, within the limits of the law. In the “as a service” model, the company pays for the right to use the service but does not own the underlying assets. This can have significant legal and contractual implications, especially regarding liability and the appropriate use of the assets or services.
In the “as a service” model, the company typically enters into a service contract with the provider. This contract establishes the terms and conditions of the service, including price, duration, service level, provider and client responsibilities, and dispute resolution procedures. It is essential that the company fully understands these terms before signing the contract.
Conclusion
In this guide, we covered in detail the importance of a comprehensive analysis when considering how to contract a technology and innovation project — whether through equipment acquisition or the “As a Service” model.
Understanding accounting and financial concepts is fundamental for project and IT managers to present effective, strategic proposals that not only address the company’s operational needs but also positively impact its results.
The decision between investing in equipment or opting for the “As a Service” model should be based on a detailed analysis of the company’s specific needs, available resources, and long-term strategies. The “As a Service” model offers significant advantages in terms of reduced upfront costs, flexibility, and access to up-to-date technologies — but it must be carefully evaluated in light of the company’s context and objectives.
Ultimately, the multidisciplinary nature of managers — encompassing both technical and financial/accounting dimensions — is vital to the success of technology project implementation. An integrated, strategic approach can not only improve the company’s operational efficiency but also strengthen its competitive position in the market.
