What Your CFO Wants to Know about Colocation

Jan 16, 2018 | Colocation, Insights

So, your company is considering colocation as a viable IT infrastructure strategy. How do you convince your CFO that it’s the right move? Convincing your CFO revolves around risk aversion and cost management. To help your CFO see the benefits of your decision, address the opportunity cost of the other options you’ve evaluated, discuss capital expenditure (CapEx) versus operational expenditure (OpEx), and address how colocation minimizes risk and cost to your organization.

CapEx vs OpEx

Colocation can provide a nice balance between CapEx and OpEx. It allows companies to maintain ownership of some of their infrastructure and reap the benefits of low operating costs after the initial capital investment. At the same time, companies will not have to endure the major capital expenditure and incurrence of debt that comes with investing in a data center’s mechanical and electrical equipment, building infrastructure and security.

When companies choose to invest in their own data centers, they must understand what their infrastructure needs will be in the next 5-10 years. At the rapid pace IT is currently evolving, some might say this is impossible. When companies overbuild their data centers, they end up with stranded capital. When companies underbuild, they never realize the full value of their investment. With colocation, companies don’t have to take this risk, and they free up capital, allowing companies more wriggle room to invest in core business resources that result in revenue generation.

Many colocation providers also enable secure, reliable and low-latency connectivity to the cloud, and they offer a wider selection of carriers and greater network redundancy than companies can have in their enterprise data centers. Colocation provides an advantage for those companies (which is most these days) who have implemented hybrid and multi-cloud strategies. It allows them to optimally manage the mix of static and fluctuating costs present in modern IT.

Minimizing Security Risks

One of the greatest risks for many companies is an IT security breach. While protecting data assets in the virtual world will still be up to companies, colocation providers manage physical security. Many Colocation providers build multiple layers of security into their data centers, such as man traps, security booths, biometric scanners and more. They also use top-of-the-line video equipment and strictly manage their video archives. Some have onsite security personnel managing access to the facility 24×7. This level of security is expensive for companies to replicate on their own. By sharing this security with other tenants, the cost is reduced, and it requires no capital investment.

The Cost of Downtime

How much does one minute of downtime cost your company? How many minutes or hours of downtime do your currently experience annually? Compare your current availability with that offered by the colocation provider of your choice, and show your CFO what every minute of downtime costs the company. This will help make the case for colocation. Remember, these costs don’t only include revenue loss and productivity loss. They also include the cost to your company’s reputation. How many customers or prospects could you potentially lose, and what is the lifetime value for each of these? What are the PR costs to regain trust in your market? Read our blog post on calculating the cost of downtime to learn more.

Put Compliance on Someone Else

Perhaps one of the heaviest burdens that falls on your finance department’s shoulders is maintaining compliance. Some of the compliance standards your company may have to meet that involve both finance and IT include HIPAA, PCI, SSAE and SOC. Meeting these requirements involves costly and time-consuming audits and meetings. When you find a colocation provider that meets these compliance requirements, you take some of the burden off your company’s shoulders. Using compliant colocation provider running a compliant data center will ensure you’re meeting your requirements without your company incurring the costs of audits and continuous compliance.