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Build or buy? Here’s how to calculate the costs.

For most people, a determining factor when deciding whether to maintain or build an onsite data center or to move into a collocated environment is cost savings,. Therefore, it is important to know the true operating cost of onsite infrastructure before price shopping.

There are six main operating expenses where colocation frequently lowers costs, which are listed below. Included are descriptions of how the costs are reduced or removed under colocation, along with calculation methods for each category.

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Once current costs are calculated, these can be compared to the provider’s quote to see if there is a business case:

1. Downtime

When servers go down, production stops, customers cannot buy, and systems must be reset, all of which incur an expense. The cost of downtime is quickly becoming unaffordable for most businesses; a report by the global market intelligence firm IDC recently concluded that Fortune 100 companies lost between $1.25—2.5 billion in revenue due to unplanned downtime.

How to Calculate Costs: Find current onsite downtime costs using the Cost of Downtime formula in “Key Calculations” section of this document. To use an online calculator, visit www.eatelbusiness.com/downtime-calculator.

2. Compliance

Meeting regulations and undergoing inspections is an expensive and labor-intensive process. In a colocation model, these costs are absorbed by the provider, including:

  • Audits fees. The bills to auditors can easily total more than $100,000 per year for a regulated data center. Further, newly constructed onsite data centers will pay as much as $70 per square foot in annual fees, according to technology research firm Forrester.
  • Labor. For many businesses, preparing for an audit is a multi-departmental affair that includes engineering, accounting, risk management, compliance, facilities, and security. The salaried hours add up quickly.
  • Risks. No matter the diligence, compliance failure is always a possibility to consider.  Penalties can be devastating; for example, maximum penalty for a HIPAA violation is $1.5 million per year, and often results in loss of customer trust.

How to Calculate Costs: First, review budget information and accounting records for line items paid to auditors for the onsite data center. Next, create a spreadsheet with all personnel involved in audits, and estimate how many hours each one spends and multiply by their hourly rate. Finally, factor in a line-item for risks, usually represented as a small portion of estimated damages for a non-compliance penalty.

3. Utilities Costs

Data centers use lots of energy resources. In fact, the massive consumption of utilities account for more than 2 percent of the nation’s total annual energy use in 2014, according to the U.S. Department of Energy.

However, for commercial data centers and their customers, utility costs are often less expensive. The massive consumption of electricity by commercial data centers gives them bargaining power over suppliers, which drives down costs to colocation clients.

How to Calculate Costs: Using the formulas provided later in this document, find current or potential energy usage for the onsite data center, including cooling costs.


4. Space

Servers can take up a lot of room, and real estate is expensive. Under a colocation model, businesses can stop paying rent on this space or can repurpose the old IT closet into something useful.

When shopping for data centers, keep in mind that real estate values can affect data center leasing costs. A recent survey of 23 markets by real estate giant CBRE shows that data center location can have drastic differences on ROI; the largest gap was a $12 million differential for a 7-year leasing period between best and worst markets.

How to Calculate Costs: Multiply the rental rate per sq. ft. times the square footage of the current data center. If the current data center is not rented, estimate the value of the space if it were re-purposed.


5. Infrastructure Maintenance

In-house data center capital is expensive to manage, and maintenance fees can add up to more than 50 percent of the annual operating budget. In terms of cost, the most expensive items to maintain are: 1) HVAC 2) Fire suppression systems and 3) Uninterrupted Power Supply (UPS).

Since these assets are easier to maintain at scale, data centers can offer a cost-benefit to colocation customers. The marginal cost of equipment maintenance for 50,000 sq. ft. is much less than that of an average-sized onsite data center.

How to Calculate Costs: Review financial records for historical maintenance work to get an estimate for current cost for the onsite data center, and remember to include depreciation in the total. As a reminder, simple depreciation = asset cost divided by the asset’s lifespan in years.


6. Infrastructure Management

Salaries are the one of the largest operational costs of data center facilities management, but that cost that is greatly reduced under a colocation model. Annual salaries for IT personnel skilled in telecommunications, data base administration, IT systems, networking and other core competencies range from $75,000 to more than $100,000, according to the Bureau of Labor statistics.

How to Calculate Costs: Create a spreadsheetof every worker involved in the data center facilities-management, and multiply their hourly rate with the percentage of time they spend on tasks related to data center management.

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