Summary
Storage services usually account for one of the highest costs in a data center outsourcing contract. Sourcing managers should therefore negotiate terms and conditions that ensure savings relative to similar in-house solutions.
Key findings
- Given the rapid decline in storage costs year over year, a fixed long term storage service contract will result in overspending for storage services.
- Lack of adequate knowledge of modern storage technologies and current industry standards result in customers formulating below-par and inadequate SLA with the service provider. This results in frequent change requests and additional costs.
- Identifying applications that may be better serviced with a SaaS solution or a private cloud option provided by the managed hosting provider.
Recommendations
- Benchmark service provider storage costs against market prices every eighteen months and ensure that price re-negotiation is part of the contract.
- Negotiate SLAs that meet your organization’s need for agility, capacity, performance/throughput and support requirements
- Perform cost benefit analysis to evaluate viability of public cloud SaaS providers and private cloud options with your managed hosted service provider as alternatives mechanisms to host applications.
Introduction
Organizations consider storage services from managed hosting service providers as a result of financial restructuring from Capex to Opex based utility models as well as when trying to free up resources to better focus on their core business application services. Other motivations to consider managed hosted service providers include shortage of skills and financial problems that limit the ability to perform regular infrastructure refresh. Using storage services from a hosted service provider may appear to reduce the total cost of owning and managing storage – hardware, software, staffing, facilities and storage management, but if not analyzed adequately, could result in costing more than owning and managing assets in-house over a period of time. Furthermore, unclear terms and conditions which are not vetted adequately with the service provider will result in vendor lock-in and poor ROI.
Documents pertaining to the contract between the managed hosting service provider and the client such as Statement of Work (SOW), Service Level Agreements (SLA) and pricing documents often do not cover all contingencies of storage asset ownership and management in a comprehensive manner. When customers realize this during the contract execution, it often results in submission of an additional change request that was not initially budgeted for. For example, additional backup requests and network bandwidth consumed as result of the backup are charged separately. New restore requests beyond what was initially agreed upon result in additional costs. Clients always assume that service providers are flexible in meeting their requirements and expect additional requests to be included, but this seldom is the case unless added features are clearly documented in the original SOW.
This research discusses storage related best practices during contract negotiations and alternatives to reduce monthly storage costs. It must be noted that this research is applicable for organizations who do not own the IT infrastructure and are using services of a hosted service provider that owns and hosts storage assets in additional to other data center components and provides various services such as storage management, backup and disaster recovery. Some notable hosted service providers that provide storage services are HP, Verizon Terremark, AT&T, IBM, CSC, Dimension data, CenturyLink, CtrlS, NTT Communications, Sungard availability services and Zadara storage.
This research is not applicable for scenarios where an organization owns the storage assets and is merely outsourcing the operations to the service provider Also this note does not cover scenarios where an organization uses colocation service providers for rack and power infrastructure but owns the rest of the hardware and software assets.
Analysis
With average costs per TB set to decline in the range of 16- 20% year over year until 2019 committing to a fixed price over the entire duration of the contract would increase the total price paid for the storage service. Therefore the client must ensure that the contract allows for benchmarking storage prices with the current market price every eighteen months. If the price difference between the managed hosting provider market and your provider is more than 10%, there should be a provision in the contract for readjustment of service cost. Table 1 provides storage tier definitions and reference pricing for each tier.
| Tier | Characteristics | Technology | Data protection | Monthly recurring charges per GB in USD |
| I | Mission critical applicationHigh performance storage | Solid state arrays or hybrid storage arraysCache CloningDeduplication and compressionAuto-tieringThin provisioning | Snapshots, Disk to disk backup, Storage level replication | 0.6 to 1.25 |
| II | Business critical applicationMedium performance storage | Hybrid storage arraysCloningDeduplication and compressionThin provisioning | Replication, disk based or tape backup | 0.5 to 0.75 |
| III | Non critical | SATA drivesDeduplication and CompressionThin provisioning | Disk or tape backup | 0.1 to 0.3 |
In addition to the above charges, data backup charges are additional and vary between 0.1 to 0.5 USD per GB per month across tiers. Also, replication charges are additional and are priced in the range of US $ 0.3 to $ 0.75 per GB replicated to the DR site after baseline transfer is complete.
Negotiate SLAs that meet your organization’s need for agility, capacity, performance/throughput and support requirements
Contractual documentation such as SLA (Service level agreements), OLA (Operational level agreements) and SOW (Statement of Work) are fairly complex in nature. It is therefore important to build the right skillsets, both technical and financial, in order to formulate comprehensive SLA and SOW. Follow these steps to ensure the contract negotiation and service delivery are smooth.
Step 1 – Work with application owners to ensure performance and availability service level requirements are captured correctly after understanding the true needs of the business. In most organizations the storage is mostly underutilized. If the organization follows a federated model, the amount of excess storage could be as much as 50%.
Step 2 – Map the assessed storage needs for each application to the appropriate storage tier to avoid unnecessary spending on expensive storage resources. Work with the service provider to implement a chargeback mechanism that reflects services consumed per-business unit. Organizations should use this chargeback mechanism to ensure internal business units are aware of their storage spending patterns.
Step 3 – Based on the application storage requirements, formulate a granular SLA and SOW. This will enable setting expectations with the service provider upfront. To ensure the roles and responsibilities of the client and the service provider are clear, it is recommended to follow the RACI model for responsibility assignment. RACI stands for Responsible, Accountable, Consulted, and Informed (RACI). Table 2 lists the storage and data management roles and responsibilities that need to be outlined in the Statement of Work (SOW) based on RACI model. Table 3 provides reference SLA values for each storage tier. Refer to “Toolkit: Outsourcing Contract — Attachment N — SOW, SLA, OLA, Price, Behavior Drivers” for more information on other elements of the contract.
Step 4 – It is recommended that before signing the agreement, the SLA, SOW and other documents related to the contract are vetted with Gartner to ensure comprehensive coverage of relevant elements.
Step 5 – After the commencement of service delivery, the service provider should provide the client with real-time dashboards reflecting the state of its infrastructure. It should also include service catalogues that enables requesting additional services as well as online access for creating trouble tickets to report any incidents
Additional recommendations
- Ensure that the contract has a provision for recovery of service credits at a market standard rate in the event of a downtime that is beyond negotiated limits.
- Ensure that the pricing document provides line item pricing for each service component.
| Storage and Data Management Roles and Responsibilities | Provider | Client | |
| Recommend Provider-standard storage and data management procedures | R, A | C | |
| Develop storage and data management Provider procedures that meet Client requirements and adhere to Client policies, and document and maintain in the Standards and Procedures Manual | R, A | I | |
| Review, provide additional procedures as required and approve storage and data management procedures | I | R, A | |
| Provide data storage Services (e.g., RAID array, SAN, NAS, tape, optical) | R, A | I | |
| Monitor and control storage performance according to technical specifications, storage and data management policies, and perform tuning as required | R, A | I | |
| Maintain and improve storage resource efficiency | R, A | I | |
| Maintain dataset placement and manage data catalogs | R, A | I | |
| Perform data and file backups and restores per established procedures and SLRs | R, A | I | |
| Manage file transfers and other data movement activities | R, A | I | |
| Provide input processing for activities such as loading third-party media (e.g., tape) and receipt and/or transmission of batch files | R, A | I | |
| Media Operations Roles and Responsibilities | Provider | Client | |
| Recommend Provider-standard media operationsprocedures | R, A | C | |
| Acquire and manage consumables, such as tape and disks, in support of the backup requirements; coordinate acquisition of additional materials as needed | R, A | C | |
| Develop, document and maintain in the Standards and Procedures Manual media operationsprovider procedures that meet Client requirements and adhere to Client policies | R, A | C | |
| Review, provide additional procedures as required and approve media processing procedures | I | R, A | |
| Maintain a media library and media management system | R, A | I | |
| Manage the media inventory to ensure that adequate media resources are available; coordinate acquisition of additional media as needed | R, A | I | |
| Manage input media availability to meet processing SLR | R, A | I | |
| Load and manage third-party media upon request | R, A | I | |
| Provide secure off-site storage for designated media and transport media to the Client’s approved off-site location as required | R, A | C | |
| Perform periodic audits to ensure proper cataloging of media | R, A | I | |
R – Responsible
A – Accountable
C- Consulted
I – Informed
Table 3.Reference values for a Storage Service Level Agreement
| Tier | Response | Availability | Initial response time | Resolution time | Restore from backup |
| Mission Critical tier 1 | Urgent | 99.999% | 5 minutes | 2 – 4 hours | 2-4 hours |
| Business critical tier 2 | Normal priority | 99.99% | 10 minutes | 8 – 12 hours | 2-4 hours |
| Non critical tier 3 | Service request | 99.9% | 15 minutes | 24 – 36 hours | 2-4 hours |
Storage Service unavailability is measured from the time the ticket is opened to the time the client once again has read/write access to the system.
Perform cost benefit analysis to evaluate viability of public cloud SaaS providers and private cloud options with your managed hosting service provider as alternatives to host applications
In order to further reduce storage costs, it is recommended that sourcing managers perform a cost benefit analysis for using public cloud SaaS providers for certain applications. If the existing messaging environments consume significant amounts of storage and are deployed using Microsoft products, consider evaluating Microsoft Office 365 as an alternative. It is recommended to perform a cost benefit analysis of using O365 versus deploying it in a hosted service provider environment and evaluate whether O365 reduces the TCO for running Microsoft messaging and collaboration applications overall. Refer to “What IT Needs to Know About Office 365: In-Depth Assessment” for more information for evaluating SaaS services from Microsoft. Public cloud SaaS can also be considered for HR and Payroll applications as well as for storage services such as e-mail archive, endpoint backup and enterprise file sync and share (EFSS). Organizations can leverage the pace-layering approach (systems of innovation, differentiation, and record) and target newer applications – the systems of innovation to run on public cloud. Refer to “How to Develop a Pace-Layered Application Strategy” for more information
Hosted service providers may also provide private cloud as part of their offerings. Hosted private cloud offerings from hosted service providers offer flexibility of pay-per-use. Also, storage resources can be disconnected after use and returned to the main storage pool for re-use. Sourcing managers must evaluate if such options exist with the hosted service provider. Testing and development efforts can be run in this manner, thus saving the organization on recurring fixed monthly costs.
