At many shops, adding incremental storage is an operational expense that few people analyze deeply, if at all, from a cost-versus-benefit point of view. Storage is simply considered a cost of doing business, much like buying a few additional PCs might be.
But at some point -- whether because of an expensive new storage area network (SAN) or a business application that requires major storage purchases -- the costs add up enough that a full-fledged ROI analysis is warranted. Where that point is "depends on whose pocketbook we're talking about," says David Hill, vice president of storage research at the Aberdeen Group in Boston. "To some it's $100,000 and to others it's a million."
Wherever the cut-off is, it's a lot lower nowadays than it used to be, according to Tom Pisello, CEO and founder of Alinean LLC, an Orlando, Fla.-based concern that sells tools and methodologies for doing ROI analysis. He starts the range for doing storage-oriented ROI at $50,000, whereas it used to be above $250,000. "Any SAN is within that, most NAS [network-attached storage] systems are within that, and most consolidation projects" are at least at the $50,000 mark, he explains.
"Folks are wanting more accountability on capital expenditures, and IT is now half of that number for most organizations," Pisello says. Given the weak economy, executives are trying to "manage the bottom-line expenses," especially if they've been unable to increase top-line revenue.
To Hill's mind, the biggest problem with most IT-oriented ROI analyses is that they are geared to a "straight" cost/benefit ratio -- how much the proposed solution will make or save versus what it will cost. And that's fine as far as it goes, but that's not how corporate executives look at most investments, technology or otherwise. "The financial community cares more about rates of return and that sort of thing," he explains. "My concern is that IT organizations have to make sure that they're in coordination with what the CFO looks at in terms of ROI."
Still, problems can arise, even with a so-called simple ROI analysis, starting with the assumptions made at the very beginning of the process. Mike Karp, a senior analyst with Enterprise Management Associates, in Boulder, Colo., devotes an entire chapter in a book he co-authored, Storage Solutions: A Buyer's Guide, to the ROI process and how IT departments need to start by collecting data on the costs and revenue associated with existing storage. Then there can be some comparisons made with how the proposed new system will change the existing cost structure.
For example, Karp quotes a study of 400 large corporations that says that downtime costs an average of $1,400 per minute. So if you're proposing a new storage system that will keep your business applications up and more available, that's a pretty good baseline to use.
Also, the value of data that's put on various storage devices may change over time, not necessarily because data gets older, but because of changes in how it's used and how often it's accessed.
Karp concurs with Aberdeen's Hill that it's well worth an IT administrator's effort to express storage ROI facts and figures in terms that senior management can relate to, such as internal rates of return and net present value.
"The real value is not that the new system fulfills some technical requirement, but that it supports some business process. So we have to realize what the value of the business is to our company," Karp explains. "Upper management absolutely does not want to hear about I/O and block versus file storage."
Also, Karp says, make sure to calculate how much time is saved with the new system -- because time saved translates into personnel costs saved, which can easily outweigh hardware and software costs. He suggests figuring out the number of hours you currently spend doing manual backups, restarts, tape handling, storage capacity planning and other storage management tasks. Then figure out what the new system will do for you, how much time will be saved -- and how much money will be saved through personnel costs.
Other factors that can easily be overlooked include additional revenue generated by no longer having to take the system offline to be backed up, lower costs due to the centralization of a SAN, and reduced real estate needs in the data center.
Another ROI pitfall, Karp and others say, is not distinguishing between hard savings -- those that can be quantified -- and "soft" measures, like "better brand loyalty," that can't easily be measured. So, while factors like "peace of mind" may be important to an IT staff member, they will not impress the executive honcho who has to approve the proposal.
Still, Pisello maintains that soft measures are important to list and that they often can help win over a top manager, assuming the nuts-and-bolts business case has also been made. "Reducing costs is interesting, but you also have to keep an eye on strategy," he says.
Finally, as Aberdeen's Hill says, it's essential that when the ROI analysis is done and the project approved, that someone goes back later and determines whether the initial ROI estimate turned out to be accurate. "Few organizations follow up and measure what the hell actually happened," he says. "Once you get the money, you forget why you got it."Visit SearchStorage.com for all your storage information needs
Send your questions on ROI and IT investments to the experts at SearchCIO.com
This was first published in September 2003