In Search of Storage ROIThe following articles from ITCentrix (a division of Barometrix Software Corporation) appeared in SMS magazine:
In Search of Storage ROI - Part I: Practical Guidelines to Assessing Storage Costs The requirement for IT managers to justify the business case or investments has not been this strict in perhaps two decades. It's not surprising. Overcapacity, a weak economy and the lack of payback for scads of deployed applications have led to a clampdown on infrastructure spending by financial executives. This has only exacerbated the challenge for storage managers. The ROI problem facing IT buyers is twofold. First, infrastructure, in and of itself, delivers no tangible value to an organization, or at least that's the perception. Second, the justification for a capital investment in storage hardware and software usually boils down to cost savings (the reduction in total cost of ownership - TCO). Many organizations have difficulty measuring TCO and communicating savings in a simple yet compelling way to financial and business management.This series of articles will explore the two main areas of benefit as they pertain to storage infrastructure investments: 1) Reduction in TCO and 2) Business benefit outside of the IT shop. Practical guidelines will be provided for assessing the true return on a storage infrastructure investment drawing upon hundreds of TCO and business value case studies of Global 2000 and smaller organizations. The key issues addressed include:
Let's start with some lessons learned from assessments within large and medium sized companies. Compare Apples with Apples Take the example of workloads, or what my CTO calls "horses for courses?" It's a phrase from horse racing that means a horse may run well on certain racetracks but not so well on others. Taken in an IT applications context, the workloads you deploy for a specific storage infrastructure will have a major impact on the cost and performance of the system. This seems obvious but I'm sometimes stunned by the lack of attention paid to the applications. Not that I'm suggesting storage professionals are qualified to address application issues in depth, but one of the most important things to consider in any cost/benefit analysis for technology is; "What work is being done by the system and how is this affecting the projected benefits?" As an example, consider storage management productivity, a common indicator of staff cost. Otherwise known as "Gigabytes Managed Per Person," this metric tracks the amount of storage managed per full time equivalent (FTE) and directly influences IT staff expenses. The charts below show two scenarios that reflect three-year TCO and storage anagement productivity. Each scenario compares:
Source: ITCentrix, Inc. 2002 The conclusion drawn from scenario I: "NAS is cheaper to manage than SAN." The conclusion in Scenario II: "SAN is cheaper to manage than NAS." So, what's different? The catch is workload:
Bottom Line: The complexity of the workload will have a major impact on overall storage costs and potential for reduction. In general, workloads that are more complex are more expensive to manage and will deliver greater cost payback with consolidation. Focus on the Big Picture
To understand complexity, you must evaluate the workload (discussed above), the type of application, its backup and recovery requirements, number of users and the database and middleware diversity to name a few. The more complex the environment, the harder it is to manage and the higher the operational costs. In general, more complexity means greater opportunities for savings but also higher risks to the business. To evaluate the impact operational staff may have on cost savings potential; try to understand the experience level of the people responsible for the implementation and ongoing management of the infrastructure. An experienced staff will be more productive than an inexperienced staff and if they have strong implementation experience, risks will be lower and the time-to-benefit will be sooner. The technology should be evaluated on the robustness of the solution and the vendor's track record of delivery. If a technology is just emerging, try to draw on mainframe or proprietary midrange examples. Capabilities such as copy services, data movers and remote mirroring have been around for quite some time and real world experiences can often be evaluated. Bottom Line: When you see a metric, always ask: "What's the workload and how experienced is the IT staff? Then and only then, put the technical aspects into play. Get the Big Cost Items
If a switched network is involved, capital and implementation costs will be higher but sometimes so comparatively small it doesn't matter. In other cases, putting in a switched network will kill the business case;it all depends on the specific customer situation and especially the workload complexity. If a switched network is already installed, the business case often comes down to the impact of software exploitation on the two factors above (people and utilization). Sometimes the ROI is enormous, other times, the software price hurts the business case. The chart below demonstrates the impact of staff costs using a 10 server Unix example with 2TB of protected storage. The workload is a mix of business intelligence, business processing and infrastructure. The chart shows all non-staff costs (hardware, software, network backup and services) and people costs (operational staff). The example compares a distributed topology outside of a data center with a consolidated storage infrastructure (SAN). The ratio shows for every dollar spent on non-staff items, how much is spent on operational staff.
Bottom Line: Focus consolidation efforts on those areas where the payback is huge. That means driving up operational staff productivity. In the next article, we'll take a closer look at the components of TCO, including storage utilization and how to translate these factors into financial measurements to put money in your pocket. David Vellante is the President and CEO of Barometrix, a software and services company focused on measuring the business value of information technology. In Search of Storage ROI - Part II: What Matters Most in Storage TCO In Part I of this series of articles, "In Search of Storage ROI, Practical Guidelines to Assessing Storage Costs" I tried to make the case that cost savings is greatly impacted by factors other than just the specific storage technology deployed, namely the applications and workloads running on a storage infrastructure. In Part II, I'd like to explore this reality in a bit more depth and provide some guidelines on hard-dollar storage cost justification methods. In Part III, we'll explore ways to quantify the soft-dollar business benefits of technology investments. The main emphasis of this article will be the Total Cost of Ownership (TCO) factors that have the biggest impact, particularly IT staff productivity and storage utilization. I'm not suggesting that other items aren't worth considering, but these are the so-called "biggies" in my experience. As stated in Part I, there are typically two main cost areas that provide the most benefit when consolidating storage: 1) IT staff productivity (i.e. GB managed per person); and 2) Storage utilization. Let's start with the first. Does IT Staff Productivity Count? In a recent survey of seventy-five CEO's by Darwin Magazine, 87% of CEO's said that increasing productivity is their top IT priority. My strong advice is to find a way to sell the benefits of staff productivity improvements because it's typically the largest area of benefit for a storage investment. But be careful with projections because complexity (e.g. applications, workload, processes, etc.) will have a major impact on potential benefits. Consider the following case study examples demonstrating the potential staff impact for two similar scenarios: 1) A 30-server Unix environment with 5TB of Direct Attached Storage (DAS) running a mixed Unix workload (e.g. business processing, decision support, file/print mix) and 2) A 30-server Unix environment with 5TB of DAS running a purely technical workload (e.g. CAD/CAM application):
The chart shows full time equivalent (FTE) storage management staff for a base case DAS and target consolidated scenario in the two workloads cited. While both demonstrate very similar improvements in staff productivity from a percentage standpoint, the more complex workload (mixed) demonstrates a much better profile for staff savings in absolute terms. To calculate the rough dollar savings is simple (12.4 - 5.8 = 6.6 FTE's vs. 4.0 - 2.2 = 1.8 FTE's). Take a fully loaded cost per FTE over a three-year depreciation period and the potential for savings becomes obvious, especially in the mixed workload. Exploiting Un-utilized Storage That said; understanding storage utilization is not so simple. Typically, non-mainframe systems lack the tools to accurately measure utilization. While products from storage resource management (SRM) vendors help, most companies I visit have not exploited such tools in their Unix and Windows environments. The factors influencing utilization are many, including the quality of processes, IT staff expertise and the amount of staff dedicated to storage management to name a few. I've seen customers with very high utilization rates but very low storage management efficiency, indicating they are efficiently using allocated storage but they need more people to do so. The point is, sometimes it's cheaper to buy more storage than to pay people to manage it efficiently. Assuming you can establish a decent estimate of utilized, protected storage, a good way to conceptually understand the cost benefits of improved utilization are to think in terms of application requirements. Specifically, the characteristics of an application will determine the amount of storage needed, while the technology and other factors (e.g., staff skills) will determine how much storage needs to be deployed to meet application requirements. To illustrate this trend, consider our previous 30 Unix-server, 5TB example shown below:
The chart plots three metrics on a double-Y axis showing: 1) utilization percentage (Bars on leftmost Y-axis); 2) Net utilized GBs - representing the application requirements (straight line on the rightmost Y-axis) and 3) GBs deployed to meet the application requirements (descending line on the rightmost Y-axis). The data compare three scenarios including DAS, a Consolidated environment (basic storage management) and an Advanced Consolidated environment (with advanced copy and storage management services). The numbers demonstrate the potential for cost savings by showing that a simplified storage management infrastructure requires less Gross" GB's deployed to meet the application requirements. In other words, I need to deploy 5TB protected to deliver my 1.8TB application requirements with DAS and only 2.8TB in an advanced consolidated environment to deliver the same 1.8TB to the application. I can either pocket the money saved (GBs saved * cost per GB) or use the additional storage for something else. Getting Started without "Boiling the Ocean" Set a Baseline - Lay out all the hardware, software, backup network and other capital costs; and the implementation and training costs. Tease out the staff costs by really digging into the operations that are impacted by storage beyond the obvious backup tasks. My experience is people frequently underestimate the percentage of time spent managing storage. To test this premise, ask questions like: "What's the process for recovery and who's involved?" Once you're reasonably comfortable with the "as is" start projecting the "could be." It's not all Benefit - In thinking about a SAN or data consolidation, consider the implementation costs because they can be substantial. The more complex the implementation, the higher the implementation costs (and risks). Implementation costs can run from 2-10% of the overall three-year costs if server and server staff costs are included. Storage Software Costs - In many cases, savings from storage utilization can be offset by increased storage software costs. Don't let acquired software go unused. Factor in Growth - Factoring new storage, switches and other infrastructure, as well as staff costs over the depreciation period is essential to forecasting a business case. Don't Forget the Server Benefits - Often, server benefits are excluded from TCO analyses. Consolidating storage will often improve server utilization and reduce server management complexity. While a second level benefit, a large consolidation may demonstrate substantial savings. Get a Financial Person to Help - When you have a business case that's reasonable, translate the benefits into a cash flow model. Calculate not only a simple ROI (Benefits / initial costs) but find someone who can help derive Net Present Value (NPV), IRR (internal rate of return) and break even period. Remember, no one financial metric is a silver bullet. ROI won't tell you anything about the size of the benefit and NPV won't give you a sense of the time to benefit. David Vellante is the President and CEO of Barometrix, a software and services company focused on measuring the business value of information technology. In Search of Storage ROI - Part III: The TCO Trap This is the third article I've written in as many months to explore the ROI of storage infrastructure. The first two presented some practical considerations to measure the total cost of ownership (TCO) benefits of storage consolidation. The premise of this article is quite different and can be summarized by the following statement: Although providing cost-efficient infrastructure is imperative, it is insufficient for maximizing business value. The implictions of this statement for buyers and sellers are significant. For buyers, the notion that achieving efficient costs is the technology "end game" perpetuates the theme that IT is forever destined to be a cost-center drain on corporate resources. For sellers, the idea that the main motivation for companies to update infrastructure is to cut IT costs is a "death trap" leading to an undifferentiated marketplace with ever decreasing profit margins. Demonstrating tangible business value is a major problem facing the storage industry. This challenge is not just about reducing the cost of infrastructure - it is a question of how infrastructure can effectively maintain and enhance the value of applications and business processes it supports. Consider the following data points. ITCentrix studies show in environments with decentralized storage infrastructures, commonly referred to as direct access storage (DAS), for every $1 spent on hardware and software, $5 is spent on support staff. In consolidated environments, (e.g., SAN) the ratio is $1: $1. This should come as no surprise because we all know management (i.e., support staff) is the major culprit of storage costs. With staff support costs being dramatically reduced from the equation, increasingly TCO reduction will come from one area, and one area only: Vendor profit margins. For buyers and sellers, the imperative to understand and communicate business value has never been greater. This article presents a simple and effective approach to measure the business value of IT investments beyond straight IT cost reduction. The following issues will be addressed:
The process involves three basic steps, including:
Background In the 1990s however, investments in desktop productivity tools began to change the way IT was viewed. Important work by academics like Erik Brynjolfsson and Lorin Hitt demonstrated due to competitive pressures, productivity gains show up in "consumer value" rather than profitability. IT ROI issues faded away in the late 1990s/early 2000s but the Internet meltdown has spurred new interest in IT return. While hard ROI is still required, the marketplace increasingly recognizes the need for "soft" metrics in line with Brynjolfsson and Hitt's now common sense argument. Interest in IT ROI has re-emerged in a marketplace where:
Most people don't view IT in value terms, they think of IT as a cost center. IT budget, total cost of ownership (TCO) and IT spending are concepts typically associated with IT. Accounting for costs is vital but insufficient for delivering business value. Focusing on value means measuring the contribution IT makes to factors like productivity, revenue, headcount, customer satisfaction, market share, cycle time and risk reduction. ITCentrix studies show on average, for every dollar spent on IT, about eight dollars is created in organizational value. The bottom line is optimizing IT spending means understanding business implications. There are numerous approaches to quantifying ROI from the highly scientific to the purely subjective. Virtually all organizations can claim some use of one or more of the following approaches:
The challenge of most of these approaches is threefold:
Regardless of which technique is used, the jargon of value measurement can be intimidating, making simplicity a virtue for any approach. Measuring IT Value Beyond Cost Savings
Consider the following example. A company with $1B in revenue and 4,000 employees spends approximately 5% of revenue on IT (about $50M) annually. A 1% reduction in IT TCO at this company will deliver a $500,000 bottom line savings impact. However, making its 4,000 employees 1% more productive will yield $10M in value to the organization. The bottom line is IT investment decisions must consider the dimensions of both cost and business value. The challenge becomes how to measure the IT contribution to employee productivity. Productivity is output produced per unit of input. A straightforward way to normalize productivity measurement across organizations is to use revenue per employee as the key metric. Dividing revenue per employee by the average fully burdened salary per employee yields a ratio. This ratio is the average, per employee "Productivity Ratio" for the organization as a whole. Figure 2 shows the calculation for the following company example: $1B in annual revenue 4,000 employees Fully burdened salary per employee = $50,000 At $50,000 burdened salary per employee and $250,000 in revenue per employee, for every $1 the organization pays an employee it expects an average return of $5 in revenue terms.
In general, such productivity figures are considered empirical facts" within an organization the financial department can readily provide. Figure 3 shows data from the ITCentrix ValueBase and the U.S. Census. The data indicate per employee productivity ratios in various industry examples. Importantly, different industries will have different productivity metrics. Insurance carriers, for example tend to have very high productivity per employee ratios while services-oriented industries will display much lower figures.
A higher figure across industries is not necessarily an indicator of "goodness," rather it is a benchmark within an industry that can be used as a guidepost. Comparisons across different industries may be, in fact, largely meaningless as each industry displays different economies, business models and competitive factors. Measuring the Contribution of IT The approach relies on the following basic premise: Users of applications are the prime drivers of IT value - The productivity of users, while they are actively using applications, is the key to understanding the productivity impact of IT. The bottom line is understanding users and how they exploit applications enables IT value measurements. Applying a productivity ratio to establish IT value requires answering the following questions:
The first question can typically be addressed by simple observation, discussion and common sense. Studies by ITCentrix demonstrate on average, across a wide range of industries, employees that use computers spend about one third of their time actively using IT applications. This figure can be derived through discussions or more detailed user surveys for individual organizations and departments. The second question, while more subjective in nature, can be measured by surveying different constituents within an organization (e.g., users, line of business managers and senior executives). The results of this input can be used to create an "organizational consensus." Figure 4 describes the concepts in detail. The idea is to ascribe a portion of the overall organizational productivity to IT in a "value chain" manner. The approach is to assess overall organizational productivity (as shown in Figure 2), identify the portion of employees' time spent using IT and assign a productivity ratio for employees while using IT applications. This ratio can be derived using a 1-7 scale addressing the following question: On a scale of 1 to 7 (low to high where 4 is average) what is the contribution of IT to an active user's productivity? The resulting answers can be applied using a set of pre-determined "governing rules" where, for example, an answer of 4 multiplies the company average productivity by 1 (i.e., uses the overall average), a 7 multiplies the company average by 3.0 and a 1 multiplies the company average by 0.25. By applying the subjective notion of productivity, while users are actively using IT, to establish overall IT value, the value of IT applications can be simply calculated by multiplying user costs (# users * percent time spent using IT * fully burdened salary) by the derived productivity ratio while using IT. Simply stated, the value of IT is a function of the time employees spend using IT applications and the impact of usage on their productivity.
Applying the Concepts to Storage
Total business value of the target infrastructure is the sum of the three factors. Because TCO calculations were explored in previous articles, the focus here will be on the two latter components of value. Service Levels The latter, availability is a bit trickier to measure. Many IT operations measure so-called IT availability or what the data center sees (e.g., the green lights on the disk drive). It is crucial for value measurements, however to measure end user availability. This means including the application, network, client and other factors the user sees. The reason for this is simple. Measuring end user availability is the only way to understand how an unplanned outage affects user productivity. ITCentrix research shows end user availability for most non-mainframe applications ranges from 95% to 98%. Poorly managed infrastructures are at the lower end of the scale (or often below) and the process discipline required to achieve improvements is not trivial. Nonetheless, improvements in storage infrastructure will enable process and procedure commonality and discipline (e.g., for backup and recovery) and will yield increasingly better end user availability. The measurement of availability value comes from understanding:
As such, the business value of availability becomes the expected increase in user productivity from reducing unplanned outages. Flexibility The bottom line is application function directly influences user productivity. The value measurement issue becomes how will a change in infrastructure impact the productivity of the application development staff and how much more value will they be able to deliver to the users. The subjective answers to these questions can be quantified simply by understanding:
Taken in context, the business value of flexibility is the percent improvement in user productivity that the application development staff will be able to deliver. To weigh the storage technology impact on service levels and flexibility, build a simple scoring system to evaluate the impact of key technology components on the end user. The following chart can serve as an example of a small subset of storage functions:
Scores can be summed and competitive products can be evaluated in a business value context in addition to cost. The Net Business Contribution of IT Once established, the cost deltas of delivering value can be assessed and subtracted from the total value determined (if higher) or added to the total business value if lower to determine Net Business Value (NBV). The costs netted out may include:
This approach addresses two major problems found with most IT ROI measurements: 1) Net Business Value allows apples-to-apples comparisons highlighting the IT-only portion of benefit (as opposed to non-IT contributors like new sales training or a new channel partnership) and 2) NBV is easily measured on an ongoing basis (e.g., to see if the projected ROI actually occurred) because the IT benefit is not "spammed" in with other business benefits. After a project assessment is performed, a cash flow view provides financial metrics such as Internal Rate of Return (IRR), Net Present Value NPV) and Break Even Period. This allows a proper financial analysis to be completed. Risk is also factored into the analysis and adjustments to financials are made accordingly. Executive Actions and ConclusionsMost organizations do not take a 'Value View' of an infrastructure investment. But ignoring the value component can lead to decisions that may not be best for the business. By combining empirical organizational information (financials, user counts, budgets, etc.) with subjective knowledge of the contribution from applications to productivity and other business benefits, organizations can objectively identify those assets contributing maximum business benefit. The following points can serve as guidelines to get started:
David Vellante is the President and CEO of Barometrix, Inc., a software and services company focused on measuring and managing the business value of information technology investments. |
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