Stuart R. Benton

On Wednesday May 28, 2003, President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003, H.R. 2. The signed legislation will allow businesses that purchase security systems to take an accelerated depreciation write-off.

Under the provision, businesses will be allowed to write off an additional 50 percent of the adjusted basis in the year the equipment is purchased. Normally, businesses purchasing security systems depreciate the equipment under the 200 or 150 percent declining balancing method. Under the provisions of H.R. 2, a bonus amount of 50 percent of the cost can be taken in the first year. The remaining adjusted basis in the property would be depreciated starting in the year in which the item is purchased. Generally, security equipment is depreciated over five years.

To qualify, the equipment must be acquired between May 5, 2003, and Jan. 1, 2005, and placed in service before Jan. 1, 2005. So you are exactly where you want to be. You can have an accelerated tax deduction that will immediately reduce your current year’s taxable income, and you will have preserved your book profit on your income statement by minimizing your book depreciation for the year.

Answering to the Boss

Now how do you sell the investment to management?

In today’s environment, every expenditure must be closely examined and management must understand how the investment increases profitability, reduces operating expenses and/or increases efficiencies in the business processes. One of the most challenging decisions management will encounter is the purchase of the company’s security system.

A popular measurement tool used to evaluate a company’s purchase is the calculation of return on investment. ROI is used to evaluate individual projects or decisions. One reason for the appeal of ROI is that it appears simple: divide the return, or incremental gains that will be received from an investment, by the costs that were required to achieve that gain. While simple in concept, obtaining accurate measurements of the returns and the costs can be difficult and complex.

There are several steps managers can take to help better depict the impact of the security investment. The first is to properly categorize the security expenditures. While some of the management team may view the cost of security equipment and related technology as an investment, others in the organization simply apply the cost of security to operating expenses, which leads to a direct reduction of profit. The ROI will be directly impacted by the categorization of the expenditures.

Capital expenditures include new systems, system replacements and system expansion. Operational expenditures include the cost of on-going maintenance, cost of consumables, annual software licenses and other recurring costs such as staff salaries and outside contract services. ROI rarely provides justification for the operational expenses, but can be readily used to support the capital expenditure.

Some security system projects that may be easily justified with high ROIs are:

• Reducing guard force by installing access control;


• Reducing theft by installing CCTV and access control;


• Reducing vandalism by installing perimeter lighting and CCTV;


• Controlling movement of visitors by installing visitor ID badging.

Some creativity should be used when looking to evaluate security system installations. With the advent of digital technology, security systems have become more dynamic and are not just theft deterrents, but are valuable management tools. In one instance, a drug store chain had their regional managers using the security system from a central location to remotely call up video to check that each store manager had changed their seasonal displays in a timely manner. As a result, the regional managers did not have to spend days traveling to each store location to ensure the store was maximizing sales by using the correct displays, thus saving the company time and money.

Through analyzing and considering all of a company’s business processes, management may be able to find increased savings outside of the security areas, and by incorporating these savings into your analysis, the ROI calculation can be improved. On the downside, ROI can be complex and time consuming to accurately construct, and unless calculated by time periods it only indicates if, not when, benefits will be realized.

Furthermore ROI does not guarantee success nor does it factor in the time value of money. ROI cannot measure increased productivity that is a result of the employees feeling safer in the work environment, nor can it measure the company’s ability to attract a higher quality employee to work a late shift due to safety issues. However, ROI does provide a common measure, summarizing an investment’s economic risk that a company can use to set acceptance criterion.

An effective ROI analysis can keep your organization focused on the complete costs and benefits of its security system integration project, while staying in line with the company’s profit goals.