DC Consolidation Shows Overwhelmingly Positive ROI

Aug 14, 2008

Allen Bernard

Larger data centers are simply more cost effective on a per unit basis, according to research released by Computer Economics last week. Therefore, for many organizations, combining multiple data centers into a single facility should be a primary strategy for cutting costs while improving service levels.


This report, Data Center Consolidation: Business Case Metrics, follows a  2007 study on data center consolidation, updating the metrics with the most recent 2008 data. CE also provides some new statistics that further substantiate the cost-savings that can be expected from data center consolidation.


“For CIOs, that are in this current economy where they are being asked to do more with less, this is an approach that will find money in their IT budgets once the consolidation is completed,” said Frank Scavo, CE’s president.


Consolidation is Increasing


Over the past three years, the trend toward consolidating data centers has been growing. In 2006, 60% of organizations had some level of activity in the area of data center consolidation. In 2007, that percentage rose to 68%, and in 2008 it now stands at 76%. Likewise, the percentage of organizations increasing their level of data center consolidation has risen from 13% in 2006 to 18% in 2007 to 20% in 2008.


The big jump in this year’s numbers comes primarily from companies with revenues under $350M, said Scavo. But large organizations are consolidating, as well. In companies with over $1B in revenue and up, 80% percent are reporting consolidation efforts. “So, large companies are not done and I think the reason for that is through mergers and acquisitions they acquire new companies with new data centers.”


Technology is also playing an active role in enabling the consolidation trend. Virtualization and remote management technologies have paved the way for a one-to-many model to work very well, said Scavo. That and the fact that a typical consolidation effort yields a 15 to 35 percent, per server reduction in TCO.


The report quantifies the benefits of data center consolidation and provides recommendations to ensure the success of the effort. Based on a survey of over 200 IT organizations, it tracks the three-year trend in data center consolidation activity and reports current consolidation trends by organization size.


The report provides unit-cost metrics for Windows server and mainframe (z/OS) data centers by size, which show the cost savings typically realized when smaller data centers are merged into larger, single facilities. These statistics were derived from data center cost benchmarks conducted in over 100 data centers.


The report also analyzes the reduction in IT spending per-user for organizations with single data centers against those with multiple data centers. Finally, there is a summary of the ROI and TCO experiences of organizations undergoing data center consolidation and recommend best practices for mitigating risks in the migration effort.


CE’s View


The results of the study provide evidence that data center consolidation is not only cost effective but also low risk—provided the consolidation effort is given the required project management resources. Data center unit costs decline as data center size increases; providing the foundation for justifying the merging of smaller data centers into larger single facilities. While there are surely other factors involved, medium and large companies that operate single data centers require lower IT budgets per-user than those that operate multiple data centers.


More than half of the large organizations participating in the survey have already accomplished some level of data center consolidation, as have more than one third of the midsize organizations. The excellent ROI for data center consolidation is clear: more than 90% of our survey participants report full returns on their investments.


Given the ROI and TCO data, CE believes that the risks associated with data center consolidation are reasonable. While small companies tend to experience budget overruns more frequently than larger organizations do, more than two thirds of small organizations report their data center consolidation projects stayed within their budgetary estimates.


Organizations can reverse the proliferation of data centers resulting from mergers and acquisitions through a thoughtful consolidation strategy. Concentrating computing resources into a small number of physical locations can boost the productivity of IT assets and personnel and simplify management. Most organizations will realize quantifiable returns from such efforts.


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