Ever since the start of the economic downturn three years ago, terms such as "Return On Investment," "Total Cost of Ownership," and "Payback" have become common language in storage vendor pitches and customer requirements. But beyond all the buzz about these terms -- and believe me, there has been both good and bad buzz -- there are questions you, as a storage administrator, need to be asking yourself about your budgets and storage purchasing habits.
Why? Because sooner or later the CIO and the CFO will ask not only for proof that your storage investments make sense (already widespread), but also how you equate these investments into costs to be shared by business units, departments and users. And, how do you make the shift from fixed to variable costs in the operational budgetary process?
We'll focus specifically on the kinds of questions you need to think about when calculating your own storage management ROI. There are a few important points you need to know up front.
First, ROI can be subjective. Companies deploying the same product at the same time could have very different experiences with ROI because of how these organizations are run, which industries they represent, and the number/experience of staff running the storage environment.
Second, understanding the reasoning behind what is measured is more important than the actual number. Why? Because no one spends exactly the same amount of time each week provisioning storage, but knowing what to measure is crucial in order to come up with your own calculation.
Third, vendor analyses of ROI and TCO should be evaluated for what they are. The actual numbers might be impressive, but knowing how they got there and the time it took to recoup the investment is more impressive. This column just touches the tip of the iceberg in cost justification -- books have been written on this subject.
Some definitions that can help in ROI analysis
Let's start with some basic definitions associated with ROI that I have come up with while working with both enterprises and vendors:
- Return on Investment (ROI). This examines the measurable, tangible benefits of deploying a specific storage management product, technology or service, including direct reductions to operational costs due to the deployment of the product.
- Net Benefits. This looks at an extension of the ROI analysis by mapping product TCO costs into the anticipated or existing benefits. Once costs have been fully recovered from deployment of the products, this results in a break-even point (sometimes referred to as payback period) and net benefits.
- Total Cost of Ownership (TCO).These are the specific costs of deploying and maintaining a new storage product, including labor and maintenance costs, over a three-year period.
Some questions to ask when calculating ROI
Typically, before you can calculate ROI you need to understand your TCO costs. Then, the task of measuring ROI consists of asking questions that measure both the direct and indirect benefits.
Here are some example questions (again -- the tip of the iceberg):
- Before and after: How much time per week, per month, or per year have you saved by deploying this storage management tool? What other costs changed? Maintenance? Training?
- Other storage cost avoidance: By deploying this product that improves storage management heterogeneously, how much hardware did you avoid purchasing?
- Cost of downtime: What is your cost of downtime, and how did it improve?
About the author: Jamie Gruener is a senior analyst, focused on the server and storage markets for the Yankee Group, an industry analyst firm in Boston, Mass. Jamie's coverage area includes storage management, storage best practices, storage systems, storage networking and server technologies. Jamie answers reader questions related to storage management issues for SearchStorage.com. Do you want to see more articles by Jamie Gruener or insights from other noted industry observers? Visit the complete Bits & Bytes column library.
This was first published in August 2003
This was first published in August 2003