Price does not equal cost
by David Merrill on December 19, 2008
I have been writing about price and cost for years. Cost of acquisition is just a fraction of the TCO. In my work, labor is the single largest TCO element, followed closely by the total cost of acquisition. The next 3 most dominant TCO elements are migration costs and power/space/cooling and finally all the maintenance costs (hardware and software).
The following is a excerpt from the McKinsey Quarterly report talking about power, electricity and general Data center costs.
“Considering that data centers have become a costly asset, accountability for financial performance is poor. Financial and management responsibility for facilities often falls to real-estate managers who have little technical expertise and few insights into how IT relates to core business issues. Those managing server operations, meanwhile, rarely see data on crucial operating spending such as electricity consumption or the true cost of the real estate occupied by the IT equipment. Conversely, when IT managers decide on additional applications or new servers, they sometimes use only basic metrics such as initial hardware costs or software licenses. Figuring out the real costs requires consideration of facilities operations and leases, electricity use, support, and depreciation. These charges can multiply the initial purchase cost of a server by a factor of four or five. Combined with the siloed decision making and accountability issues discussed above, extra servers are often added as insurance with little discussion of cost trade-offs or the needs of the business. In the absence of true cost analysis, overbuilding, overdesign, and inefficiency become the rule.”
Hitachi and HDS have taken a real leadership role with data center emissions, green initiatives and the impact that storage architectures can have on total data center costs.
My rule of thumb has been that cost of acquisition is just a fraction of the total cost of ownership, about 20%. The McKinsey report substantiates that yet again.
I have a webcast recording with many of my findings over the years, you may want to check it out (mine is the 5th entry on this page).
