A financial tool that helps managers evaluate purchasing decisions by comparing direct and indirect costs of alternatives, Total Cost of Ownership (TCO) can identify which alternative represents a better value over the life of the project.
This powerful analytic tool enables buyers to look beyond initial costs to longer-term considerations, and thus estimate the overall cost of a project or installation. The alternative with the lower total cost of ownership represents the better value. Presenting TCO calculations can be an extremely effective and persuasive way to direct any project scope, and the ideal calculations incorporate knowledge of available solutions as well as a primary knowledge of the client.
Relationship-based integrators can use TCO to their advantage when presenting video surveillance storage solutions to their clients. Using a TCO tool to explore the costs and benefits of implementing a cloud-enabled video surveillance solution compared to a local storage-based installation can help the decision-makers at your client’s organization make the right choice. By reducing the initial investment using a scalable and flexible architecture with low monthly operating expenses, you can demonstrate to clients how the cloud-based storage approach delivers notable cost savings for the life of the project.
Several TCO calculators are available online at various sites. You will need to evaluate them to see which one fits your specific needs, but once you choose one, you will find it an invaluable resource to help promote cloud-based storage solutions to video installation clients.
Setting the Situation
For optimum cost savings without losing performance, capacity or security, a Hosted Video Surveillance Solution with cloud storage technology delivers. Traditionally, businesses have satisfied their security needs with elaborate and expensive systems of DVRs to store their video data, but this model is now breaking down. Today’s cloud-based storage solutions cost a fraction of a standard DVR deployment and significantly reduce the need for up-front capital investments.
In the following piece, I will reference two hypothetical installations — “AutoWorld” and “HealthLife” — to demonstrate the effect an accurate TCO calculation can have in presenting the benefits of using a cloud-based storage solution.
“AutoWorld” is a small regional retail chain with 10 stores, comprising 1-4 camera installations per store. “HealthLife” is a medical services group that runs three campus centers. In addition to the three-story parking facilities, each site’s eight-story hospital building has multiple entryways, corridors, check-in desks for every department and an onsite pharmacy, requiring approximately 40 cameras per site. Healthlife’s “local storage solution” is an analog CCTV system with a local DVR. The company’s “cloud-based storage solution” uses a cloud storage service provider together with a network storage device and integrated video management software.
Calculating the TCO
To calculate the TCO for each of these clients, the integrator should get answers to six key questions. Using AutoWorld and HealthLife as our examples, the power of TCO in a sales pitch becomes clear.
Question 1: How many locations and how many cameras at each?
A key determinant in understanding the cost of ownership is scoping the project. Is it a single location, like a gas station convenience store, or is it an enterprise-wide, central station-monitored operation? Obviously these poles represent a huge scale difference, but understanding the economics behind the camera build out enables you to present a more compelling cost savings benefit to your client.
Start by tallying camera counts by location and cameras per location. Calculate how many locations will have 1 to 4 cameras, 5 to 8 cameras, etc., progressively scaling up to 33 to 48 cameras or more. Create a table with a 10-year axis (the predictable life of this type of project) to compare to the cost of owning and maintaining a locally based system, assuming the usual parameters and considerations (main10ance, upgrades, failure rates, etc.) vs. the cost of maintaining a cloud-based hosted video storage solution.
For AutoWorld, you could demonstrate that 1-4 camera installations, over a 10-year foreseeable horizon, would recognize a nearly 9-percent cost benefit by moving to a cloud-based storage solution. This forecast acknowledges the cost of installing a local storage-based system, costing approximately $29,100 in 2014, when contrasted to the $15,900 cloud-based storage solution cost of ownership, demonstrating an annual savings of $13,200. By year 10, AutoWorld’s cumulative savings is nearly $45,900, due to the efficiencies of the cloud-based solution (cumulative legacy cost at the 10th year: $514,200; cumulative cloud-based storage solution cost: $468,300).
For HealthLife, even more dramatic cost savings is found in the TCO. In this case, the client’s buildings would require approximately 40 cameras per site, representing year-one costs of $118,000 (local storage solution) vs. $83,400 (cloud-based storage solution), demonstrating an upfront cost benefit of $34,600, or 29.3 percent. By the 10th year, a much more compelling picture can be presented to your client by showing a cumulative savings of nearly half a million dollars ($473,000) over the life of the project, by going with the cloud-based solution.
Obviously, a security director who demonstrates this magnitude of savings will undoubtedly hold influence over organization and management.
Question 2: What quality level camera and recorder?
The quality of the cameras used in the installation may substantially affect the TCO comparison between local storage and cloud-based storage. Cameras come with a dizzying array of features, such as scheduled or motion detection-driven recording options, H.264 video compression, pan/tilt/zoom using a joystick and Power over Ethernet (PoE); however, resolution (Low – 640x480, Medium – 720p or High – 1080p) is still the key differentiator in terms of camera expense.
AutoWorld can save nearly $3,000 by going with cameras with lower specifications; while over the 10-year period, HealthLife would recognize nearly $15,000 savings in TCO by reducing image quality to 640x480. The difference in cost can be used either to highlight the relative price parity between low and high, or to support the thrifty selection if client need is not there.
The selection of DVRs and NVRs is one that is largely dependent on the client’s technology tolerance as well as their budget. When your client selects DVRs and NVRs, the quality component represents a pretty limited difference between low and high resolution, so in evaluating the TCO, you can of10 push the higher resolution option based on the overall feature benefits. Remember to match the capabilities of the cameras and storage.
Question 3: How of10 will DVR/NVRs be replaced?
Depending on wear-and-tear and storage capacity, the lifespan of a DVR/NVR can vary. Many feel 5-6years is a good turnover rate, taking into account storage unit warranty coverage periods.
If AutoWorld replaced DVR/NVRs at a rapid pace (every two years), it would see a dramatic savings of almost 15 percent ($89,900) using the cloud storage solution vs. local storage. If AutoWorld expects a 10-year life from its DVR/NVRs, it will recognize a $32,260 savings in the cloud. Somewhere in the middle — 6 years — reveals a $41,000 savings from the cloud solution, a strong rationale for the company’s security director to select cloud over local-based storage.
For HealthLife, an every-two-years replacement would result in cloud storage providing a savings of around $723,200 vs. the local storage option. The difference is less evident as the pace slows, showing that the hospital that expects a 10-year life from their DVR/NVRs would recognize nearly $397,300 in savings. At 6 years, the company benefits from around $461,000 savings.
Question 4: What is the total cost associated with off-site storage?
Calculating TCO when it comes to off-site storage is relatively simple — the cost is eliminated. Thus, a security director spending $5,000 per year on off-site storage will recognize a $50,000 savings over a 10-year period by moving to cloud-based storage. This obviously scales upward.
Question 5: What quality of video will be stored in the cloud?
AutoWorld can optimize savings by using lower resolution (CIF 320x288) from cloud-based video storage. With higher requirements, its cloud-based storage savings benefit would diminish incrementally — by $5,500 at medium resolution, 4CIF 640x480 — over the life of the project. Storing high-resolution video into the cloud does not make financial sense because it reduces the benefit over a local-based storage solution, stealing nearly $19,200 from the original specifications.
For HealthLife’s higher resolution requirements, cloud-based storage savings would reduce incrementally, by around $26,700 at medium resolution and $93,600 at high resolution (1080p).
Question 6: How many times per year will archived video be searched?
For organizations of all sizes, the option to search through archived video can have financial implications. In general, as the number of reviews increases, so does the amount of benefit from cloud-based storage solutions over local storage solutions. This is an area in which primary knowledge of your client’s workflows can play a strong role in calculating their TCO.
Using a TCO model, we show that the cost effectiveness of cloud-based storage increases significantly for organizations that search through archived video more than twice a year. Less than that makes a case for proceeding with a local storage solution. For example, if AutoWorld is prone to review archived video five times a year, it will see a nearly $140,000 benefit by using cloud-based storage. With a cloud-based solution, HealthLife would see savings from archived reviews because of the scale of the job, but the increases of cost benefit are not as dramatic due to the limited number of locations.
Jay Krone is managing director of LenovoEMC Ltd. Request more information about the company by visiting www.securityinfowatch.com/10482707.
