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TCO analysis: does it work for storage?

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What does a storage solution actually cost? Ask a vendor and they'll most likely answer your question with another question: How much do you want it to cost?

It's a well-known fact that vendors, consultants, analysts and even CIOs themselves can manipulate the TCO analysis to make costly solutions look cheap, cheap solutions look costly and anything in-between depending on their particular agenda.

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Manipulating TCO models
TCO models offer ample places to build in bias.
Acquisition price-the lower the price, the lower the TCO, but is this the price you actually get?
System sizing-vendors can undersize the system to lower the acquisition price and resulting TCO.
Estimated utilization-the higher the utilization the lower the TCO, but who is doing the estimating and how realistic is it?
Cost of management-the more people it takes to administer the storage the higher the TCO. This is a judgment call only you can make.
High availability-the greater the uptime, the lower the TCO. Is it 99.999 or 99.9? Be realistic.
Frequency of configuration changes-the more configuration changes, the higher the TCO. Again, this is a call only you can make, not the vendor.
Frequency of upgrades-even if the upgrade is included in the maintenance agreement, implementing the upgrade increases TCO.
Training-the more training required, the higher the TCO.
Inflation-this is a wildcard that can dramatically affect wages and other costs over the TCO timeframe, usually three years. Don't let the vendor low-ball the inflation factor.
Integration costs-it is easy to underestimate the time and effort involved.

As a result, Senior Analyst Tony Prigmore of the Enterprise Storage Group in Milford, MA, says, "TCO is bad. We assess models and by and large they are invalid. We haven't seen a consistent level of credibility in any vendor TCO model." His recommendation to clients: "Do not bother with a TCO analysis unless you control the assumptions and data behind the model."

Gartner Group, the Stamford, CT, consultancy, hopes to bring some needed credibility to the subject of storage TCO with a new storage TCO model. Seven vendors, ranging from industry leaders like Sun and IBM to start-ups like 3PARdata paid "six figures," according to Dan Hoffmann, the director of enterprise storage management at BMC Software Inc. to join with Gartner in the initial development of the model. The Gartner model extends the concept of TCO into ROI and is intended to become a tool for managing an enterprise storage environment. CIOs, however, still may have trouble definitively answering the basic question-what this storage solution will cost. The Gartner model allows vendors to modify data and parameters, which despite protections built into the model raises the possibility of introducing bias and muddying the results.

Fuzzy math
TCO can be an effective tool to identify and quantify all the costs associated with a technology purchase, but it hasn't been widely applied to storage. Beyond being susceptible to manipulation, TCO raises as many questions as it answers, and the numbers can get fuzzy. "The big question is whether the numbers are real," says Scott Robinson, chief technology officer, Datalink, Chanhassen, MN, an independent storage consulting firm.

"If the vendor supplies the TCO model, we take it with a very large grain of salt," says Rocco Esposito, chief technology officer, Hunter Douglas, Upper Saddle River, NJ, which provides windows coverings. The problem, he says, is with the data, particularly pricing data the vendor builds into the model. "Prices are very negotiable, so the TCO analysis is not realistic," he says. Unless you can plug your actual deal price into the TCO model, you can't get an accurate result, but you don't really know all the final costs until you commit to the deal. It's a classic Catch-22.

Behrad Talebzadeh, director, information systems at Aventis Behring, a biotech company based in King of Prussia, PA, effectively used TCO to justify an enterprise migration from direct-attached storage (DAS) to a SAN-it showed that savings over time would more than pay for the initial outlay-but he too is skeptical about relying on a vendor-provided TCO model to select among products. "A lot of the TCO models are sales gimmicks. It is very hard to benchmark or validate those numbers," he says.

The potential for abusing TCO led IDC to drop TCO analysis altogether. "We haven't done a TCO analysis for storage since the early 1990s," says Bill North, director of research for IDC's storage software service. The problem, he continues, "is the difficulty in trying to quantify a lot of the factors that go into TCO." Too much is left to interpretation.

However, storage managers are about to get deluged with TCO models when Gartner releases its latest storage TCO model and vendors start showing up on the doorsteps of IT managers waving their own Gartner-endorsed storage TCO models.

TCO describes the full cost of owning and operating a piece of technology over a given period of time. It looks at the cost to buy the product and the cost of any accompanying service and maintenance agreements. It then estimates costs for the labor required to support the product, the amount of floor space and energy it consumes, and a host of other factors. It also factors in such issues as capacity utilization, downtime and more.

Now, however, ROI-not TCO-has become the metric of choice. ROI, which attempts to quantify in today's dollars the value of the future payback an organization will likely experience from a technology acquisition, has come into vogue. "TCO is part of the cost side of the ROI analysis," says Mike Schroeck, partner-in-charge, PwC Consulting's iAnalytics practice.

The new Gartner storage TCO model promises to shake up the usual approach to TCO. Like conventional TCO it looks at a dozen or more factors grouped into three main cost components: capital costs, labor costs and service costs, (see "Gartner TCO cost factors") but this time around Gartner is taking TCO beyond basic cost analysis. It's presenting the TCO model as a tool for managing the storage operation rather than simply for comparing vendors or justifying technology purchases. "The model looks at the various business processes that drive storage and builds in some ROI," says Craig Stanley, research director for Gartner's enterprise storage management practice. The Gartner TCO model also looks at service delivery, class of service and storage forecasting-things not typical of TCO models.

This was first published in November 2002

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