The search for cost-effective disaster recovery


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Simple method for calculating TCO

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Upfront work: Gather data from human resources and accounting. You need to know:
  1. Average annual IT personnel salary, plus the cost of fringe benefits.
  2. Number of business hours per business year (typically 2,016).
  3. Calculate the hourly IT personnel cost.
  4. The organizational cost of money: This is important for net present value (NPV) calculations. NPV is a simple time value of money calculation that adds credibility to the TCO calculation. It discounts the value of future cash flows. If this information is difficult to obtain, prime rate plus three points will usually suffice.
Next, estimate the capital expenditures (CapEx) and operating expenditures (OpEx).
CapEx: This will be the easiest aspect of determining DR TCO. Hardware purchased or acquired with a capital lease is CapEx. Hardware acquired with an operating lease is OpEx. Software licenses are usually accounted for as OpEx. If hardware is acquired with a capital lease, the up-front CapEx is the NPV of the lease payments. This is calculated with the NPV formula.
NPV = Σ Ct / (1+rt)t
Σ = Sum
C = Cash flow (in the case of a capital lease, the monthly payment)
t = time periods (monthly, quarterly, annually, etc.)
r = Cost of money or risk per time period
(5% annually = .4167% monthly)
Each cash flow must be inserted into the formula and then summed. (This is built into Microsoft Excel spreadsheets and HP 12C calculators.) Next, you need to factor in the projected additional hardware purchases or additional leases using the NPV formula. Finally, the cost of any initial and ongoing structural and infrastructure improvements required must be determined using the NPV formula.
OpEx: Calculating OpEx starts with fixed costs such as monthly maintenance, software license fees, contract work and professional services. All future expenditures should be discounted using the NPV formula. Growth must also be taken into account.

Be careful to correctly analyze personnel time expenditures, such as research, planning, preparation, implementation, management, operations, change management and troubleshooting. Then, multiply those hours against the hourly cost (don't forget fringe benefits) of personnel. If personnel receive overtime or bonus money for evenings, weekends and holidays, that must be taken into account. Once again, the NPV formula must be used for all cash flow expenditures.

TCO: Add up all of the NPVs for all of the expenditures for both CapEx and OpEx to determine the DR option's TCO.
Choosing a DR partner
Choosing DR partners is as important as the technologies that vendors offer. Careful attention must be paid to the following:
  • The DR partners will work together. No one needs finger-pointing when problems arise.
  • Partners should support the final solution.
  • The total DR solution data must always be in a recoverable and usable state regardless of where the failure or disaster occurs. Usable also means as up-todate as possible based on the RPO.
  • Database management systems can link to and recover from the DR data.
  • The total solution must work with all current and planned organization applications, operating systems, storage, storage infrastructure, platforms, etc.
  • With data storage growing exponentially (estimates are between 30% and 100% per year), the DR solution must scale with it. Assuming a 50% growth rate, DR for a terabyte of storage today will need to scale to more than 11TB in just six years.
  • To maximize control and minimize multisite DR skills (to keep TCO low), it's indispensable to have a centrally located cross-system management console. Central consoles ought to provide an at-a-glance view of the state of all current, active DR configurations. The central management facility should allow initiation of any action that's required, regardless of the DRsolution's location. This means no IT personnel are required at the primary application server, allowing for "lights out" DR.
  • Minimizing the need for user involvement (again, to lower TCO) calls for increased automation. Automated recovery from common failures, including server reboots, application crashes and network failures, can significantly reduce or eliminate the need for human intervention.

Meeting the DR requirements of the organization and regulators has become a challenge of sizable proportions. Matching DRrequirements, data and ITskills to the budget too often leads to a large GAP, but this DRGAP can be mitigated--and even eliminated--by building a sound DR foundation. There are six steps to establishing this foundation:

  1. Classify each application and its data into four categories: mission critical, essential, important and less critical.
  2. Determine the required RPO and RTO for each class of data.
  3. Determine the available DR options per class of data.
  4. Establish each option's TCO for the expected life of the implementation.
  5. Objectively evaluate the skills required at every DRlocation.
  6. Match the data, DR options and skills to the budget to determine the breadth of the DRGAP.

Employing multiple DR technologies instead of trying to force one size to fit all will help to shrink or eliminate the DRGAP. This approach takes more time to plan, implement and iron out the kinks, but the benefits are too compelling to ignore.

This was first published in November 2004

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