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Friday, September 27, 2013

Total Cost of Ownership Analysis Will Save Your Data Center Money

Total Cost of Ownership is a neat topic that doesn't get enough respect; particularly when managers look at projects through the blinders of Initial Capital Cost.

The chart below, summarizes it all. Here's why:





This is a comparison of two alternatives for a proposed Tier III, 8 MW IT load project:
  1. A Baseline efficient data center that meets ASHRAE energy minimum requirements
  2. The same project but with LEED Platinum requirements  
I'm not going to go through the detailed numbers because I don't want to loose focus on the main point of this post.  

The Base Design in this analysis cost around $40 million. The Platinum Design cost around $56 million. The two points are plotted on the graph at year zero. Most decision makers will stop at this point and choose the Base design because there is less capital expenditures involved. 

What they are missing though is the 20 years of operation and energy costs that are reflected in what we term the Total Cost of Ownership (or Life Cycle Costing).  These cumulative costs over the days and months and years do add up to a hefty amount.  


The graph above is an extraction of the first graph in which I simply captured 8 years into the operating timeframe. (It helps visualize the graphic). The plot shows that the Platinum building total operational costs remain higher than the Base alternative, but only for a short timeframe.  Around the 5th year, the Platinum project starts to cost less to operate than its Base counter. 

Now go back to the first graph above and follow the Magenta line. You will see that the Platinum LEED project over the 20 years lifetime, costs less to operate. To be exact, it costs roughly $140 million less to operate.

There's a lot of engineering economic analysis that happened behind the scenes to get these numbers. We had to look at energy costs, operation costs, maintenance costs, apply a realistic discount rate for borrowing monies, which may differ between one option and the other. 

But the point I want to stress is that planning a project without doing TCO analysis is risky business; the operational costs over the years could drain your bank account.  In this example the LEED Platinum project after the 6th year was the gift that kept on giving and identifying this gift required big picture TCO analysis. 

5 comments:

  1. I really loved your blog, but it appears that you have put a lot more work into it. I will keep your blog in my twitter so I can come back and see it again when it has some new information. Good subject!

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  2. I have to disagree with your comment that, "Most decision makers will stop at this point and choose the Base design because there is less capital expenditures involved." I would agree that statement is true if the buyer is not interested in buying a premium product, i.e. "just kicking the tires", but buyers that are knowledgeable expect there to be a first cost premium for better performance. It is the job of the seller to justify that the benefits of the premium performance outweigh the incremental cost IN THE CUSTOMER'S MIND. (caps intentional) At the same time, the knowledgeable customer will do their best to minimize that incremental cost. Sometimes those efforts lead the seller to believe that the buyer is only worried about first cost. That's why your analysis of the two options is critical. If you sell a premium product, and can't provide a TCO analysis, you better get one. If your prospect doesn't care about TCO, you need to do a better job of qualifying your prospect.

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