Build Versus Lease Data Centre – Which Is The Better Option?

When your business grows you will realize that your company data centre is running low on space, power and HVAC capacity.

In such a scenario, you may be faced with a critical dilemma?

Lease or build a data centre?

Both cases have advantages.

data center

If you build a data centre, the company:

• Gets complete control over the operating environment, including power, temperature and humidity, and security to name a few
• Can maximize and share existing space
• Has no risk of losing lease

One the other hand by leasing a data center, the company benefits by,

• Having predictable operating expenditure instead spending high CAPEX
• Having flexibility to add capacity by scaling up as and when the need arises
• Getting accessibility to additional space without capital expenditure
• Getting assistance from experienced and certified professionals to run the data centre efficiently
Cracking the tough nut, build or lease is now a predicament facing many an IT company.

The following three reasons are behind this scenario

1. Data growth – It goes without saying that we are witnessing an exponential increase in data growth. With smart devices becoming ubiquitous, and the Internet of Things (IoT) on the horizon, companies are flooded with unprecedented opportunities. Data is doubling every two years. At this rate the digital world is likely to have nearly 44 trillion gigabytes by 2020.

2. Virtualization – The market research analysts are predicting the global storage virtualization to grow at a compounded annual growth rate of nearly 24 percent. Data centre operators are leveraging virtualization technology in order to reduce the cost of power consumption needed to operate data centres.

3. Consolidation – Organizations are increasingly adopting strategies to reduce IT assets by using more efficient technologies. This approach is called IT consolidation or data centre consolidation.

Nevertheless, opting to build may make sense in some situations. Therefore it is imperative that IT managers must evaluate the financial impact on their business goals when considering leasing versus build.

One fixed non-contentious answer cannot be given to this predicament. Each organization must seek a solution on its own depending on its operational needs, expected future growth and the budget available.

On a generalized basis however, the following elements will have to be taken into consideration before taking any further step.

• Benefits – Which advantages override to make a strong case either for build or lease?
• Costs – How will the organization fund for the new data centre that include both hard and soft costs as well as other resources?
• Risks – What impact uncertainties can have on data centre?

Let us expand on each of the above one by one.

1. Benefits
By building a data centre you are able to leverage the existing space to the maximum. This translates into complete control over the operating environment. You decide on who can access the facility. You also decide the maintenance schedule, the type of HVAC to be deployed and any re-engineering or modification that are to be made.

Another advantage is proximity of your staff to the data centre. With the entire space at your disposal, you can decide on the layout of the office as per your operational requirements.

Lease – The advantages of lease are already enumerated above, for example flexibility, scalability and predictable operating expenses.

2. Costs
If you lease or opt for colocation, certain upfront costs can crop up. Most of the expenditure otherwise is operational.
The upfront cost can include setup or initial move in fees. Other initial expenses can be network cross connect fees as applicable, depending upon where the data centre is located. Power charges can be either metered or flat rate depending upon the local conditions.
Another expense can be staffing. Most clients prefer to take assistance from smart hands even for tasks such as rebooting or racking.

If you decide to build your own data centre the costs are several such as:

• Upfront for planning, design, and commissioning. This can be a significant portion in the range of ~ 25% of total construction costs.

• Construction of building – If the data centre is green field the costs can include real estate acquisition, costs of transaction, and brokerage fees in addition to excavation and construction itself. The costs of construction including the shell are extremely variable because of the inconsistent fortunes of the real estate sector.

• Other costs include, security setups, fire suppression and detection, getting building permits, other infrastructure such as HVAC units, UPS equipment, network connecting costs, and data centre staffing, and annual maintenance.

You must also take into consideration risks associated with the options, lease and build.

If you lease, the colocation provider can ask you to move out for any of the following reasons.

• If the facility reaches full capacity or for some reason it prefers another client.
• If the provider does not renew your license.

On the other if you build, you risk not sizing it correctly. If you come to know the capacity is short after it begins operation or later on down the line, the costs of retrofit can be even steeper than the initial build costs.

As per a study, for most companies leasing works out to be more cost effective than building. However, each organization must make a quantitative assessment of the financial and other implications before a decision is made to either build or lease.

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