The Five Tool Data Center: Finance- The Customer Perspective
For all the diverse technical decisions that are made regarding a new data center there is one universal question that every organization asks—“How the heck are we going to pay for this thing?” If your company isn’t concerned with this question please give me a call. Now for the rest of you out there, I want you to call me too but you’ve obviously grasped the “money doesn’t grow on trees” concept so you are aware that there are more than a few finance related issues associated with any data center. Data centers are multi-million dollar propositions and we all know what that means—some finance guy from an agency is going to have a big say in whether your project actually gets approved or just continues to look really good on paper. This means that you need to understand the financial parameters that your company uses to evaluate projects like constructing a new data center facility to develop an effective business case for leasing or purchasing your next data center.
The first action to take in addressing this requirement is to enlist the aid of the highest ranking individual in your company’s finance department. The big questions is debt, should you take it or not, well there is good and bad side, depends on why you want to take it. If it earns you more money in the future then its good but if its just a cost then its bad debt, if you already are in bad debt and get get out of it then check out Trust deed scotland. Unless you have a strong financial background everyone needs a Sherpa when they are venturing into an area outside of their expertise. Working closely with a member of your finance organization will help you better understand what is, and isn’t, important to the people who will be evaluating the project. Remember, the ultimate aim of your business case is to ensure that your goals align with the financial principles of your company.
The first issue to be addressed is what is your firm’s stance on costs in general. For example, are they more concerned with above the line costs like operational expenses or do they place more importance on the value of below the line considerations such as deprecation. The relative importance of these considerations tend to change over time, for example firms may place a higher value on holding cash in uncertain economic times. Understanding your company’s current perspective on costs will be a major determining factor on the mode of acquisition that you propose.
In making the decision between leasing and building a data center the internal cost of capital is another factor that your business plan must address. Building a data center is a capital intensive venture—even if you’re leasing it since migration costs, racks and cabling are capital events, and the price of money is perhaps the most important element in determining the value of one proposed project versus another. Often times the discount rate that a company applies to a project is higher than you might obtain out of house. Typically, this structure is used to establish a higher bar for evaluating the need for internally financed projects to ensure “we aren’t just wasting money”. Many times the business cases advanced for new data center projects neglect to include this important element into the overall financial projections. Forgetting that company money isn’t free is the best way to ensure that your proposal is greeted with a resounding “No”.
Understanding how your firm would typically treat an asset like a data center is the third key consideration that your business case should address. This is particularly important if purchasing the facility is the acquisition method that you are planning to propose. For example, how will accounting treat your data center? Actually, this is a bit of a trick question since they may elect to treat the building and the components within it separately. Depreciation schedules are important to consider since they are based on what the company views as the “useful” life of an asset. For example, if your proposed data center has a useful life of ten years but finance writes it down over 17 your company is carrying a “dead” asset on its books for seven years. This is a clear example where the plans for the facility and the financial goals of your company must clearly be in synch.
Obtaining new data center capacity is an important financial consideration for any organization. Your business case must address the key areas of concern for your organization. Working closely with a member of your finance team and understanding what information needs to be including in building your proposal are the essential elements to ensuring the successful adoption of your proposal.