The Outsourcing Continuum, Part IV: Fully Managed

By Mike Scheuerman

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In the fully managed model, you don’t own the equipment. You are paying for someone else to take on the costs for technology refresh and the expertise to manage and monitor the systems.

The physical environment is owned and operated by the service provider. You don’t have a staff of hardware engineers and you don’t have a computer room to manage or pay for. You don’t have to worry about upgrading your machines or the environment in which they reside. They will be in a robust physical facility with multiple sources of communication and power.

You don’t really care about the equipment, because it belongs to someone else and it’s their problem to worry about keeping it running. You are paying for a certain level of service as defined in the service level agreement (SLA). As long as the service levels are met you really don’t care how it gets done. This is more expensive than other models, but you have to weigh that cost against the resources that you would be dedicating to the acquisition, housing, management and maintenance of your systems.

With managed services you get the security of having your servers sitting in a hardened data center in the event of a disaster. In this model you are paying a level of service that you and the provider will define as a part of the negotiation and configuration discussions.

Typically you’ll pay for:

  1. A defined number of servers

  2. Connectivity from your office to the servers

  3. Reliable power and communications infrastructure

  4. Horizontal software applications, e. g. Operating systems, Database engine

  5. Regular updates to the software and hardware

  6. 24x7 monitoring of systems with alerts to let you know if there’s something amiss.

  7. Regular reports on service levels

Servers - The servers may be physical or virtual servers. More and more service providers are using virtual server environments. This trend will likely continue and you needn’t be concerned with the physical arrangement of the equipment. If you have a small number of applications you may only need one or two physical servers running multiple virtual environments.

Connectivity - As in the co-location model, connectivity to your office network and to the Internet is what’s needed to make sure that you can access the servers that are doing the work. There are myriad communication speeds ranging from the equivalent of DSL speeds up to the highest speeds available. You will have to work with your service provider to decide how much data you are going to move between your office and the servers.

This will determine how much bandwidth you need. If you have heavy traffic to a server based application then you’ll want to have more data bandwidth available on that side of the equation. If you have a lot of data coming in an ecommerce application, then you’ll want more bandwidth to accommodate that. If you’re just doing normal office Internet surfing you’ll probably need less bandwidth.

You should purchase the amount of bandwidth that you use on an average basis. There will be a surcharge for using more than that, but that can be mitigated by making sure that the surcharge is based on a 95% measurement of sustained usage. If you push a lot of data to your servers occasionally, that won’t cost anything extra.

Horizontal Software - Horizontal software is the software that is needed across all application platforms and systems. This includes the operating system with on-going deployment of patches and updates to current version as released from vendor. If you are using a database like Oracle or MS-SQL, the service provider should have a certified expert on staff to manage and maintain the database engine. You shouldn’t expect to have support for any applications that run using that database.


24x7 Monitoring - Monitoring will include a long list of things that need to be watched. This will typically be done from a 24x7x365 network operations center (NOC). Items that will be monitored will include:

Reports - You should get at least an annual hardware and software performance report to let you know what has been done to maintain the agreed to service levels. You’ll want to get a security and vulnerability report at least twice a year to make sure that the systems you’re using are safe and secure. On a quarterly basis you’ll want to see reports on operating system and horizontal application performance tuning, hardware maintenance including firmware and BIOS updates and physical support tasks that were done.

Power and Comms - As in the co-location model, the power in the data center should be backed up by an uninterruptible power supply (UPS) to ensure that in the event of a power outage. The service provider should have at least two communications services providers to ensure that the loss of any one communication channel doesn’t significantly impact you.

SLA - The scope of services covered by under the SLA should include the following:

What You Won't Get

With this model, you get a lot, but you will have to buy and maintain any applications you want to use. This could be your own staff or you could have the software vendor support those systems if they provide that kind of service. You’ll have to make sure that you have someone on staff that has responsibility for managing the relationship with your service provider and making sure that you get what you’re paying for. You will have to develop, maintain and test a business continuity plan or disaster recovery plan.


The costs for this kind of outsourcing vary widely depending on what services you are buying. The pricing is based on service providers cost of system acquisition and maintenance as well as the cost of hiring the experts needed to maintain those systems. For example, if you have six physical servers running general applications and moderate bandwidth needs, your costs might look like those in the following table.

To determine if this is cost effective you’ll need to sit down with the guys in finance and figure out the cost of acquisition and depreciation. Don’t forget to figure in the cost of power for the systems and the air conditioner and communications costs from a local carrier. You also have to include in your calculations the costs of the staff to monitor systems 24x7x365 as well as the staff costs for engineers to maintain and monitor the systems.

You get more value for your dollars because you don’t have to worry about buying and maintaining servers. You also get the security of knowing that someone is watch your systems around the clock to make sure that they’re up and running, doing what you need to get done. In the next article, we’ll take a look at what you should look for in a service provider and the service level agreement.

Mike Scheuerman is an independent consultant with more than 26 years experience in strategic business planning and implementation. His experience from the computer room to the boardroom provides a broad spectrum view of how technology can be integrated with and contributes significantly to business strategy. Mike can be reached at mike@scheuerman.org.