“Buy vs. Build” Considerations in Today’s Data Center Marketplace

Presenters:

Jerry Gallagher, CEO & PresidentJeff Robinson, Vice President

Today’s Agenda

• What is Buy vs. Build?• Factors to Consider• Decision-Making Process• Conducting an Analysis• Some Take-Aways• Audience Questions

The 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 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 & 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 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 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 Consider

• Financial• Technological• Operational• Structural• Other

Factors: 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: 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: 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: StructuralOrganizational 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 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 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 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 ProcessSelect 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 /

BuildOption 2 / Buy

Capital Costs $40M $01-Time Charges $5M $5MLease Costs $4M $42MOps Costs $22M $25M

Total $71M $72M Non-Financial Factors

Factor Weight

Option 1 / Bld

Option 2 / Buy

Eval

(1 – 5)

Weighted

ValueEval(1 – 5)

Weighted

Value

Location 4 4 16 3 12Facil/Structure 5 3 15 5 25IT & Telecom 4 3 12 4 16Services Avail 2 4 8 1 2Security 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 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’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’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’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 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-thumbTier 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 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 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’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 & Presidentggallagher@totalsitesolutions.com

Jeff Robinson, Vice Presidentjrobinson@totalsitesolutions.comwww.totalsitesolutions.com 888-329-4877