{"id":633,"date":"2009-07-02T05:24:24","date_gmt":"2009-07-01T19:24:24","guid":{"rendered":"http:\/\/nsrd.wordpress.com\/?p=633"},"modified":"2018-12-12T16:00:18","modified_gmt":"2018-12-12T06:00:18","slug":"media-capex-and-opex","status":"publish","type":"post","link":"https:\/\/nsrd.info\/blog\/2009\/07\/02\/media-capex-and-opex\/","title":{"rendered":"Media, CapEx and OpEx"},"content":{"rendered":"

A common mistake I often see made, particularly when planning new system implementations, is to try to calculate out media costs over the entire planned growth period<\/em>. That is, assuming a new backup system is going to be installed, accounting\/management types will want to plan full tape requirements for the projected growth period the system was planned for (e.g., 3 years) from the outset<\/em>.<\/p>\n

The flaw of this approach is attempting to account for media costs as capital, rather than operational expenditure. This approach often results in unnecessary cost savings being made by cutting out other aspects of the system budget \u2013 software and hardware needed now<\/em> are excluded from budget in order to make way for media that will be needed later<\/em>.<\/p>\n

This CapEx vs OpEx approach becomes most flawed when a system is being put in place making use of the “latest and greatest” media type. Let’s assume for the moment that LTO-5 has just been released, and a system with 4 x LTO-5 drives is installed, with planned capacity requirements for the next 3 years suggesting that 4,000 units of media will be required.<\/p>\n

However, at just-released prices<\/em>, media will be prohibitively expensive. Assume if you will that the RRP for each LTO-5 tape may be around $180 AU. Even with a bulk purchase discount bringing the price down to say, $100 AU per unit of media, that’s $400,000 of media if it is being purchased from the outset.<\/p>\n

However, in the backup industry, we know<\/em> that media gets progressively cheaper as it has been out for a while. Just look at all<\/em> the LTO series of media. In Australia, each new format came out at around $180 RRP per cartridge. Now a simple search shows that I could pick up, on RRP<\/em> alone, LTO-4 media for as little as $85 AU. (That’s just from one search, and for individual unit pricing.)<\/p>\n

So going back to our not-yet-released LTO-5, assuming 4,000 units of media will be required across 3 years, the operational expenditure<\/em> for that would be cheaper than the capital expenditure<\/em>, and the media would only be purchased on an “as needs” or “near as needs” basis, ensuring media doesn’t sit on a shelf for lengthy periods of time before use.<\/p>\n

Let’s say that media is purchased every 6 months for such a system, and an equal amount of media is purchased each time. So, every 6 months or so, one would need to order another 666 units of media for the system. Let’s round that up to 670 so we’re talking about packs of ten. We’ll assume an 11% decrease in the cost of the media every 6 months.<\/p>\n

We’ll also assume that any bulk order (say, 300 units of media or more) will result in a 40% discount from the RRP. Let’s run a simple numbers game here then:<\/p>\n