Build Or Colocate? The ROI Of Data Center Facilities In India

Many Indian CIOs and their infrastructure and operations (I&O) teams are in the market for a new data center as their existing data centers are running low on space, power, and cooling capacity. Forrester finds that data growth, virtualization, and consolidation are the main culprits behind these capacity challenges in India. For instance:

  • Data growth increases data center storage investments. Forrester estimates that storage consumes somewhere between 5% and 15% of the total power consumed in the data center and that the volume of data is growing by 30% to 50% per year.
  • Virtualization drives higher-density infrastructure architecture. Organizations face pressure to support more extreme compute densities and experiment with new infrastructure architectures.
  • Data center consolidation puts more pressure on centralized facilities. Per Forrester’s Forrsights Budgets and Priorities Survey, Q4 2012, consolidating IT infrastructure was a critical or high priority for nearly 70% of Indian IT decision-makers. This means more power, cooling, and space for centralized sites.

Data center facilities are one of the largest line items in an IT infrastructure budget, and these costs can run into the tens or even hundreds of millions over a data center’s lifetime. However, CIOs and business leaders in India do not fully understand the true costs and risks associated with building and operating a data center. It is utterly critical for organizations to understand the cost and risk implications of build versus colocate and justify the business case to the executive team.

Leveraging an earlier version of Forrester’s Total Economic Impact™ (TEI) methodology applied to data centers, Rachel Dines, Sophia Vargas, and I just published a ROI calculator and report to help Indian IT organizations evaluate two approaches to greenfield data center implementations: traditional builds and colocation. We quantified the costs, risks, and benefits associated with each scenario and calculated the net present value (NPV) of this investment over 15 years, using a discount rate of 10%. Based on the analysis, Forrester concludes that:

  • For most organizations in India, colocation makes more economic sense than building a traditional facility. In our “most likely” scenario estimates (including risks and realistic outcomes), the NPV over 15 years of building and managing a traditional data center in India jumps to US$56 million, while colocation is US$30.5 million. 

                                         

*All numbers are in millions of US dollars

In addition to calculating the total economic impact of a leased versus owned data center, the report also highlights why Indian organizations should consider nonfinancial benefits and should ask the following questions when deciding whether to build or colocate their new data center:

  • Is owning and operating a data center a strategic differentiator for my company?
  • What is my organization’s risk tolerance and culture?
  • Does my organization have the capacity to forecast and plan effectively?
  • What is my cost of capital? Does the business favor operational expenses or capital expenses?

Forrester recommends that I&O leaders and their CIOs in India evaluate and then take advantage of this new wave of colocation services where it makes sense. For full insights and analysis around this discussion, download the ROI calculator and the complete report.

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