The Storage Economist

If you have followed this blog, or been exposed to storage economics from Hitachi over the past few years, you will recall that we have characterized and documented some 33 different types of costs that make up storage total cost of ownership (TCO). The key part is that price does not equal costs, and there are many factors that inflate the cost of ownership beyond the purchase price. There is a well-established Hitachi white paper describing the 33 types that you can download and read the details.

Following is a timeline summary of how we arrived at the number 33. In the early days (2002-2003), we had only defined 25 types of costs. In 2004, the number increased to 29. After a few years, the number grew to 33 types of costs and that’s where it’s held steady for about the past four years…until now.

My work assignments had me visiting ASEAN, New Zealand and Australia the last several weeks, and it was in Canberra that a new type of cost was discussed in great detail. So with gratitude to one of our great customers in Australia (Centrelink), I am proud to announce a 34^th type of cost for storage TCO. We may call this the Canberra Effect.

Type 34 – The Cost of Storage Procurement

We often hear comparisons like “Why is enterprise disk too expensive? I can go down to <insert local store name> and buy a 1TB disk for $50!” Telling a TCO story helps to diffuse these statements, and can help explain the variety of costs associated with long-term procurement, growth, maintenance and decommissioning of IT-class storage.

We all know that you cannot simply call up one vendor, order a system and expect the best competitive price. You want to make vendors work for your business, and to achieve the best price possible. Equality in the bid and procurement process requires a lot of effort, and the time and cost required to save a dollar may actually cost you that dollar back (and possibly some change). The cost of procurement can include many tasks and functions:

• Preparation of the request-for-information RFI
• Review and selection of the RFI
• Preparation of the request-for-proposal RFP
• Review and selection of the winning bid
• Negotiations, contractual work
• Certifications and service levels
• Purchase order approval
• Procurement management processes

The procurement process can take weeks, or more commonly, even months. Some large organizations are in a constant state of disk procurement, given exponential data growth. If the procurement process takes 2-3 months for example, then as soon as one purchase cycle ends, it is time to start all over again for the next growth cycle.

One downside to measuring/reporting this new cost element is that the storage team or architects do not have any real options to reduce this cost. Representing the cost of procurement, on top of all the other costs, is largely a political move. It is important to show management that there is a cost burden when there are long processes to acquire storage. The cost of procurement may be a soft cost, and may not compare well to the cost of maintenance (for example), but can be a valuable part of the total cost.

Management options can be initiated when it is shown this one cost relative to all other costs. Government agencies have to take IT procurement out to competitive bids. There seems no way around this cost, but at least it can be presented as part of the total cost to the organization. Perhaps when procurement or IT management sees (graphically) the impact to TCO that the procurement process imposes, new initiatives or processes might be considered over time.

Now I need to work with my colleagues in marketing to update a lot of documents, white papers and PPT decks to reflect this 34^th cost. I guess this is the cost of discovery….