“Buy vs. Build” Considerations in Today’s Data Center Marketplace Presenters: Jerry Gallagher, CEO & President Jeff Robinson, Vice President
Dec 23, 2015
“Buy vs. Build” Considerations in Today’s Data Center Marketplace
Presenters:
Jerry Gallagher, CEO & PresidentJeff Robinson, Vice President
Today’s AgendaToday’s Agenda
• What is Buy vs. Build?• Factors to Consider• Decision-Making Process• Conducting an Analysis• Some Take-Aways• Audience Questions
The Situation TodayThe Situation Today
• In today’s dynamic Data Center market, firms needing IT space are faced with the choice of Buy vs. Build
• Both sides have their backers• But which factors & tools should
drive the decision? • This session provides a high-level
overview from several perspectives:– Financial– Operational– Technical
Today’s Learning ObjectivesToday’s Learning Objectives
• Following today’s presentation, you should be able to:– Identify factors & differences to evaluate co-
location and build-out solutions– Determine situations where both options
might be considered viable solutions– Conduct a Comparative
Analysis of the options todemonstrate the best choice
Distinguishing Buy & BuildDistinguishing Buy & Build
• Buy – Outsourced Wholesale– Colo – Managed Hosting – Cloud (SaaS/IaaS)
• Build – Traditional Construction/Renovation of a Data
Center Facility – May be either:
• User-Owned• User-Leased
What We Won’t Be Talking AboutWhat We Won’t Be Talking About
• Strategic Planning: Wider Variety of Options – Consolidations– Platform Migrations– Operational Reconfigurations
• Hybrid Facilities – Combined Office & Data Center Space
• “Reverse Colo” Options– Overbuilding, then renting to other sub-
tenants
Today’s Situational ExamplesToday’s Situational Examples
•Scenario A Major Financial Services Firm
•Outgrowing the Current Facility
•Scenario B Fortune 500 Services Provider
•Needs a Disaster Recovery Environment
•Scenario C Not-for-Profit Governmental Contractor
•Current Facility is Reaching End-of-Lease (or End-of-Lifecycle)
We will be referencing these…
Factors to ConsiderFactors to Consider
• Financial
• Technological
• Operational
• Structural
• Other
Factors: FinancialFactors: Financial
Financial Issues are Easily Recognized & their Impacts are Understood:
• Capital Costs• Operational Costs• One-Time Charges• Lease Costs
• Financial
• Technological
• Operational
• Structural
• Other
Factors: TechnologicalFactors: Technological
Realistically assessing future IT Architecture is crucial
• Projected Growth & Predictable Expansions
• Your Equipment Mix (Servers, Storage & Network)
• Projected Contractions– Virtualization– Consolidations
• Platforms Deployed & Evolutions• Expected Spatial, Electrical and Cooling
Densities
• Financial
• Technologica
l
• Operational
• Structural
• Other
Detail is Important! Macro-Level Projections Can Skew Results
Factors: OperationalFactors: Operational
Operational Factors define priorities & the tolerance for risk
• Staff Requirements• SLAs• Security• Limitations w/Data Center
Support • NOC Requirements• Power Management &
Allocation• Telecommunications• Overall Corporate Culture
• Financial
• Technological
• Operational
• Structural
• Other
Factors: StructuralFactors: Structural
Organizational Structure—how IT fits into the overall business mission— critically affects Data Center strategies
• Is Data Center Management seen as w/in organization’s “Core Business?”
• IT Standardization can minimize Planning Uncertainties
• Financial
• Technological
• Operational
• Structural
• Other
• Who makes Decisions re: Reliability (i.e., Tiering)
• Division of Responsibility: Who owns the power?
• Importance of Business Continuity Planning
Other FactorsOther Factors
Customer-specific factors can also result in unique advantages & disadvantages
• Proximity between HQ & Staff• Server Hugging Tendencies• Storage Space• The Neighbors
– Adjacent tenants at initial occupancy– Long-term synergies and threats
• Financial
• Technological
• Operational
• Structural
• Other
Comparing the Options:The Decision-Making ProcessComparing the Options:The Decision-Making Process
The Decision Process is Best Served with:• A Structured & Objective Evaluation
Methodology • Blending of Both Financial & Non-Financial
Factors• Pre-Defined & Stable Weighting Factors• An Evaluation Template That is Prepared &
Accepted in Advance• Comparison Prepared to Make It
Understandable by Both:– Upper Management – End Users
Decision-Making ProcessDecision-Making Process
Select or Narrow Geographic Region(s)
Evaluate Build Options(non-site specific)
Evaluate Buy Options
(site specific)
Analyze & Compare
Financial /Non-Financial
Decision-Making ProcessDecision-Making Process
Select Geographic Region
Evaluate Build
Options(non-site specific)
Evaluate Buy
Options(site specific)
Analyze &
Compare
Financial / Non-Financial
Financial Factors (8 Years) *
Factor Option 1 / Build
Option 2 / Buy
Capital Costs $40M $0
1-Time Charges $5M $5M
Lease Costs $4M $42M
Ops Costs $22M $25M
Total $71M $72M Non-Financial Factors
Factor Weight
Option 1 / Bld
Option 2 / Buy
Eval
(1 – 5)
Weighted
Value
Eval(1 – 5)
Weighted
Value
Location 4 4 16 3 12
Facil/Structure 5 3 15 5 25
IT & Telecom 4 3 12 4 16
Services Avail 2 4 8 1 2
Security 3 3 9 3 9
Total 60 64• All Cost Factors will be discounted or adjusted for the Time Value of Money.
Decision-Making Process:Helpful HintsDecision-Making Process:Helpful Hints
Important Process Steps:• Develop Initial “Mandatory Features”
Checklist• Narrowing Step / Reduce Options to 5 or 6
Choices• Solicit Actual Colo Pricing• Obtain Real-World Construction Estimates• Pre-Determine Weighting (i.e., Importance)
of Each Non-Financial Factor• Document an Audit Trail
Conducting an Analysis: The Gotcha’sConducting an Analysis: The Gotcha’s
Pricing Factors Often Overlooked or Discounted:
• Shell Lease Costs• Energy Costs (PUE)• Facility Management / Maintenance• Security Services• Staffing Differentials• Telecommunications• Tax Consequences• Incentives
Conducting an Analysis: The Gotcha’sConducting an Analysis: The Gotcha’s
Checking the Numbers: Construction Pricing
• Cost Estimates can range all over the map– Uptime Institute tends to lean upward– Internal estimates often lean too low– Inexperienced AMEPs may deliver unreliable
information– Commodities costs (steel, copper, etc.) often
fluctuate • Construction Options & Variations
– Too many permutations make comparisons tricky– Pick 1 or 2 “best” design scenarios and stick
with them.
Conducting an Analysis: The Gotcha’sConducting an Analysis: The Gotcha’s
Checking the Numbers: Colo/Host Vendor Pricing
• Determine true total cost• Pricing Complexities
– Different vendors price differently—translation challenges
• $/kW vs. $/sf• Cooling up-charges• Allocated (i.e., “Reserved”) vs. Actual Power Draw
– Added “Options” can mean additional costs• Cross-connects• Management fees• Power whips and electricity mark-ups
– Make sure Price Quotes are complete & valid for the entire evaluation period
Best Practices: Cost Estimating TipsBest Practices: Cost Estimating Tips
• Apply Rules for the Time Value of Money– Allows for a Fair Comparison for Trading Off
Long-Term Operational Costs vs. Capital Costs
• Some Cost Estimating Rules-of-thumb
Tier II -- $6 to $12 / MW
Tier III -- $10 to $18 / MW
Other Important Factors• Energy: 10₵ / kWH (typically between 7₵ & 12₵)• Maintenance / Years 2 thru 10: 10% of original construction costs
Purpose-Built Might Be the Best Fit WhenPurpose-Built Might Be the Best Fit When
• Raised Floor Requirements Are > 2,500 sf– Lower levels can be affected by the Tier level desired
• Client Needs Environmental & Operational Control
• Hosting SLAs May Cause Regulatory & Legal Issues
• Access to Capital should make it Affordable w/o Resort to a “Reverse Colo Option”
• Usage Horizon is Greater than 8 Years– TCO basis: Construction cost pay-back is typically 7 to
8 years
Colocation Might Be the Best Fit WhenColocation Might Be the Best Fit When
• Organizational Financing is Capital-Constrained
• Usage Horizon is Less than 8 Years– Long-Term Colo Cost Savings often won’t match
Owner-Constructed solutions
• Operating a Data Center Facility is Not a Core Competency
• Where Data Center Colo/Hosting Markets are Flush w/Available Providers
Take-Away’sTake-Away’s
• While many Industry White Papers contain valuable information, still take w/a Grain of Salt (i.e., Who’s the author?)
• No “One-Size-Fits-All” Answer• Real Data Center Costs are often
– Greater than internal estimates– Less than industry standard estimates
• w/Most Data Center Cost Comparisons, it’s very common to forget an expensive element
A defined & objective evaluation is key!
• Q&A• Sample Reference
Materials• Site Selection Criteria for Regional and
Location-specific Searches • Mandatory Features Checklist• Financial Comparison• Typical Study Table of Contents• Conversion Method: Cost/sf to Cost/kW
www.totalsitesolutions.com/BuyVsBuild
“Buy vs. Build” Considerations in Today’s Data Center Marketplace
Jerry Gallagher, CEO & [email protected]
Jeff Robinson, Vice Presidentjrobinson@totalsitesolutions.comwww.totalsitesolutions.com 888-329-4877