Data Center Consolidation Shows Overwhelmingly Positive ROI

August, 2008

Data center consolidation is one of the most fundamental ways to lower the cost of IT operations. Larger data centers are simply more cost-effective on a per-unit basis. 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 follows our 2007 study on data center consolidation, updating the metrics with our most recent 2008 data. We also provide some new statistics that further substantiate the cost-savings that can be expected from data center consolidation.

This Research Byte is a summary of our full report, Data Center Consolidation: Business Case Metrics.

Consolidation Activity Is Increasing
Over the past three years, the trend toward consolidating data centers has been growing, as shown by the adoption percentages in Figure 1. 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.

DataCtrConsolidation Fig1 - Data Center Consolidation Shows Overwhelmingly Positive ROI

The full version of this report quantifies the benefits of data center consolidation and provides recommendations to ensure the success of the effort. Based on our 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. We provide 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.

We also analyze the reduction in IT spending per user for organizations with single data centers against those with multiple data centers. Finally, we summarize the return on investment (ROI) and total cost of ownership (TCO) experiences of organizations undergoing data center consolidation and recommend best practices for mitigating risks in the migration effort.

Computer Economics Viewpoint
The results of our 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 our 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, we believe 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 that their data center consolidation projects stayed within their budgetary estimates.

The full version of this report analyzes the various levels of effort that organizations can include in the scope of their consolidation projects. It also provides recommendations for planning and managing such projects as the mission-critical efforts that they are.

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.

This Research Byte is a brief overview of our report on this subject, Data Center Consolidation: Business Case Metrics. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website at (click for pricing).

Server unit cost statistics in this report were provided by our partner, Metrics Based Assessments, based on data center benchmarking studies conducted for over 100 data centers over a 15-month period.