• Straight facts on data center decisions: Update, build or outsource

man and women talk about energy management in a data center

When deciding whether to upgrade an existing data center, build a new one, or outsource to a colocation data center, begin by considering business needs, future plans and financial preferences. A 10-year total cost of ownership (TCO) comparison may favor upgrading or building over outsourcing, but strategic factors such as cash flow, deployment timeframe and more can outweigh economics.

Determine the right approach
Simple upgrades to existing equipment may be the easiest and most cost-effective solution. When minor upgrades like installing air-flow management solutions are feasible, keeping the IT load in house makes financial sense. Over 10 years, upgrading may save more than 60 percent compared to outsourcing.

While all data centers require the same types of capital and operating expenses, the cash flow model for a new-build data center and a colocation data center are very different. New build involves large upfront capital expense and variable annual operating expenses. Colocation data center space is more predictable, representing a steady monthly expense. Businesses that value lower capital expenses may view the colocation cost model as a benefit, despite a higher long-term TCO.

When a data center has an expected life of five years or less, outsourcing makes financial sense; but when expected life exceeds five years, building a new data center is the better financial choice.

Strategic factors 
Financial factors are critical to the build or outsource choice, but cost isn’t the only consideration. Decision “filters” such as the need for rapid IT deployment rule out an upgrade or new build in favor of outsourcing. Such filters, along with strategic factors, often exert a compelling influence on the decision:

  • Critical facilities expertise can balance the odds in favor of outsourcing, unless a business has the resources, expertise and desire to operate an in-house data center.
  • Regulatory requirements affect businesses in terms of tight security or reporting; however, some colocation providers can deliver the expertise to ensure compliance with government regulations.
  • Life expectancy of less than two years indicates a short-term need that a quick upgrade or colocation space can address.
  • Deployment timeframe depends on business needs and the threat of lost opportunities. Minor upgrades can happen almost immediately. Using a colocation provider can mean deployment in a few weeks. Building a new data center can take six months to two years.
  • Company culture can be a deal-breaker. If a business is opposed to outsourcing in general, colocation may be out of the question.
  • Comfort with housing IT equipment in shared space may depend on how a provider’s acceptable use policy (AUP) delivers tenant security and reliability.
  • IT accessibility to the data center in a reasonable timeframe is essential to confidence in a colocation provider.
  • Comfort with dependence on contract terms is important in evaluating a potential colocation provider.
  • Perceived size of capital investment helps a business decide whether the value of TCO savings is significant enough to warrant the upfront capital expense.
  • Cash flow model preference may seal the deal – the predictable, steady operating expense of colocation may trump potential long-term savings for many businesses.

Evaluating the risks and benefits of upgrading, building or outsourcing to satisfy increased IT deployment requires a considered approach to balancing cost against timeframe and the inherent values of a business.

Financial factors are critical to the build or outsource choice, but cost isn’t the only consideration Worksheets, financial examples and a build-vs.-collocation TCO calculator are available. Download White Paper #171.
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