Storage Informer
Storage Informer

Soft and Hard Costs

by on Jul.08, 2009, under Storage

The Cost of Backup: Soft and Hard Costs

EMC logo The Cost of Backup: Soft and Hard Costs

Continuing a theme from the previous post, I want to briefly discuss the notion of hard and soft costs in a business case or Total Cost of Ownership (TCO) study. Hard costs are those costs associated with hardware, software, maintenance,…

Continuing a theme from the previous post, I want to briefly discuss the notion of hard and soft costs in a business case or Total Cost of Ownership (TCO) study.

Hard costs are those costs associated with hardware, software, maintenance, operational expenses, capital costs, and so on. They are specific and identifiable costs to the business. Soft costs, on the other hand, are not so easy. They are often highly variable, based on intangibles, or things that are very difficult to quantify. They include things like the cost of downtime, the value of data, the benefit of higher availability, and sometimes, people and labor costs.

(Although, as an aside, I would note that people/labor costs can sometimes be soft costs, and sometimes be hard costs. If we are talking about the cost of personnel to administrate a backup system, this is a hard cost. If we are talking about lost productivity due to system/data unavailability, this is a soft cost.)

Generally speaking, most businesses will accept the distinction, and will accept hard costs and savings in a business case. It is pretty tough to argue that a tape library with tape drives carries a real and quantifiable cost: a cost of acquisition, and a cost of maintenance.

On the other hand, some businesses will accept soft costs, but many will not. Do you really save $1,200,000 if your mission critical server can be restored 4 hours faster than with a competitive solution? Do you really lose $10,000,000 if you lose (and cannot restore) 200 MB of data? Maybe. It probably depends on your industry. A financial institution may lose more, and have a better understanding of the magnitude of those losses, than some other businesses. Other businesses may not lose anything except people time. And, for better or worse, people time may not be valued with a specific dollar amount. So, for many, a business case based (solely) on soft costs is a much tougher sell.

Therefore, when we build a business case, we strongly prefer to use hard costs to justify the decision, and explain the Return On Investment (ROI).

Again, lets borrow from the prior post. First we have an example of hard costs:

  Tape Backup Double Take Avamar
Hardware, Software, Setup $120,000 $31,750 $800
Maintenance $18,000 $6,314 $200
Media $36,000 $0 $0
Salary $150,000 $15,000 $7,500
Off-site pickup and storage $36,000 $0 $0
Year 1 Total $360,000 $52,884 $8,500

Everything here is a hard cost. Everything has a specific, quantifiable, identifiable cost to the business. And as a result, when I conclude that the cost of an Avamar solution is 83% less than the Double Take and more than 97% less than the cost of tape I have a very powerful argument that Avamar should be strongly preferred to the other two solutions. Put another way: this is an argument I can take to the bean counters, and they have very few ways that they can dispute it (other than making sure that the numbers we have presented are accurate).

Now, how about soft costs? The last table I used is a fine example of soft costs:

  Tape Backup Double Take Avamar
Cost of unrecoverable data ($10,000/MB) $200,000 $694.44 $200,000
Cost of downtime ($42,000/hr) $336,000 $1,680,000 $168,000
Year 1 Total $536,000 $1,680,694.44 $368,000

Both costs here are soft costs: how much does unrecoverable data cost? How loud is loud? What is the sound of one hand clapping? Likewise, how much does downtime cost me? You may know the answer to these questions for your business, but more likely you do not. I could tell you (and I sort of have, by assigning values to the categories!) but your answer is probably going to be more valid than any I supply. And even if you know the answer, it certainly doesn’t mean that an accountant–or a manager or CFO–will accept it as part of a business case.

So when I say that Avamar costs approximately 40% less than tape, and 80% less than Double Take, that is interesting, but it is very likely not relevant to my business case, TCO, or ROI. Even though, on paper, I can show savings of $1,312,000 in soft costs, most businesses will be far more interested in the $44,384 of hard cost savings.

What is more–even if the soft cost savings were more realistic, this would still be the case. That is to say, assume the savings really are about $1.3m; but that instead of having to use a totally ridiculous number like $10,000/MB, I have more data, but a more realistic $/MB, for the same net savings. At least I am not insulting your intelligence now by telling you that you are carrying around $20,000,000 worth of data on that 2 GB USB key. Even with that said–even if I can justify my soft costs with sound logic and reasoning–most businesses will still be more interested in hard cost savings. And most will find it far easier to justify a decision on the basis of hard savings.

At the end of the day, the real question here is: do you know how much your data protection (backup and recovery) environment costs your business? Do you know the components that contribute to that cost, and how much each one of them costs? These are critical pieces of information as we seek to improve our backup environment–especially in these tough times. The worse the economy is (and hopefully it doesn’t get much worse) the better we need to know our costs and have a sound business case in order to make change.

Do you know how much backup costs you?

Final thought: I don’t think the first table is at all comprehensive when it comes to understanding the hard costs associated with backup and recovery. In a future post, I will attempt a more thorough review of what all the cost components of backup and recovery are.

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