Data is critical to organizations and companies is a conclusion reached by most everyone. In the different groups, there is wide variation in what is required to provide the necessary infrastructure to store, access, and manage information. Decisions to implement infrastructure require an understanding of the economics of information – what are the costs, what is the value of the data, and what is the time horizon. The scale or the amount of data can magnify less than optimal decisions made. This is why these decisions are strategic – setting a cost and capability for managing and storing information will have long term economic impact.
Economics for Strategic Decision-Making
These questions point out that economic decisions need to have a time element. The cost for storing and managing information is a continuum and not specific to the lifespan of the storage system and software. The selection of the storage and management solution will be a major factor in that cost, especially with the lifespan of the solution and the transition costs. From experience, the time horizon needs to be seven or ten years. The seven or ten year timeframe will cover a technology transition and fits into the strategic planning timeline for executives. For evaluating the economics of storing and managing information, an economic evaluation using TCO (Total Cost of Ownership) elements that represent the cost of storing, accessing, and managing information is the most practical measure. Representation of the cost should be cumulative, showing an ongoing cost over that horizon.
In the calculation of cost for storing, accessing, and managing information or TCO for short, the cost factors to be considered are crucial in creating a credible model. Hard costs – those that are real expenditures need to be detailed and accounted for during the time covered. The hard costs represent real product prices, operational costs, etc. These need to be numbers that can withstand scrutiny and challenge. Without this assurance, the economic decisions to be made may be challenged as well. Some of the hard costs to consider are:
Soft benefits from a solution, those that cannot have a definitive number, should not be included. These would be challengeable numbers and could possibly invalidate the economic evaluation or create a degree of skepticism. Again, only hard costs and benefits should be included. These numbers need to have a yearly cost and then represented as cumulative costs over the time horizon. The changes in demands such as increasing amounts of data, increase in overheads, and decrease in device costs should be factored in on an annual basis.
The costs should be a comparison between the current status quo meeting demands over time versus one or two other solutions. Three alternatives can be represented effectively and understood. As more alternative solutions are added, the ability to understand and consider the alternatives clearly becomes difficult.
A simple example of a TCO cumulative chart follows. Other examples are available at http://evaluatorgroup.com/services/financial-models/
Making decisions about storing, accessing, and managing information have long-term economic implications because of the longevity of the data. Continued growth in the amount of information amplifies any decision. Solutions must be evaluated not only on their technical capabilities but on the long-term economics.
An economic analysis can be done to enable making an informed decision. The economic analysis produced can be used not only in making the selection of the solution but, importantly, for justification of the expenditure. The economic-based decision is an investment in that valuable organization or company asset: data.Back to Analyst Blogs