These days we are challenged more than ever on how best to consolidate our existing data centre estates while ensuring sufficient new capacity is available for meeting immediate and future IT requirements. Three- to six-month IT planning windows are now the norm which can make this balancing act even harder.

While the cloud - private and public - has a role in future planning, organisations face a changed world when it comes to deciding whether to invest in privately owned data centres or outsource to colocation operators. Data centres are increasingly about economies of scale, physical security, vast amounts of power supplied resiliently, and efficient operation.

For many the costs and complexity of planning, designing, building and running data centres is already making outright ownership increasingly untenable resulting in total or partial outsourcing. With the growing availability of purpose built 'ready-to-go' facilities, lower cost fibre communications and more sophisticated IT monitoring software it is quite feasible to operate estates more remotely while still keeping close control of systems and data.

Whether renting space and infrastructure for a few racks in a shared hall or leasing a large custom designed private data hall the choice and flexibility available is impressive and is all funded from operational expenditure preserving an organisation's capital for its core business.

While on paper depreciating the build cost of a privately owned data centre over 15 or 20 years may appear to give a lower TCO than a comparable colocation solution, the reality is that it is either sized to cope for 10 years of growth, in which case it will be massively under-utilised for many years, or it is sized for just the immediate requirement in which case it will be too small to enjoy the economies of scale of a larger data centre.

Putting this into perspective, consider a self-build project including the power, cooling and associated infrastructure for supporting an initial 25 racks with additional capacity to take up to 80 racks. Let’s assume a build cost of £2.5 million depreciated over 10 years to £250,000 pa or a cost per rack of £3,125. On the face of it this may well appear cheap compared to a colocation facility.

That is until adding the cost of capital, say an average of £100,000 pa, and equipment maintenance, perhaps another £50,000 pa, and of course rent & rates – £90,000 pa.There’s also staffing and even assuming a bare minimum, £150,000 will be needed for salaries including all uplifts. The total is therefore £640,000 pa or £8,000 per rack for the 80 racks. Not such a good price after all.

But that’s not all. Initially it’s not 80 racks but 25. Those 25 racks now work out at an average of over £25,600 pa each and even assuming the data centre will be full in a year or two to get the price per rack back down to the lower level, there is a fair chance it may be too small. If 85 racks are needed where will the extra five racks go? Building another 80 rack facility for a further £2.5 million may well be unviable.

By comparison, housing the same number of initial and potential additional racks in a modern tier 3 UK colocation data centre will cost between £5,000 and £10,000 per rack pa depending on location (with London/inner M25 locations being at the higher end of the scale). This includes space, power, cooling and associated infrastructure.

This illustration shows the own-build option looks cheaper than colocation only if the cost of real estate and staff are ignored and full occupancy is assumed. Some of the new single site ‘mega’ data centres – over 250,000 sq ft - can further reduce the cost per rack by delivering even greater economies of scale. This is achieved by all data hall construction taking place within one building and the utilisation of a common facilities infrastructure (power supply, HVAC plant, fibre cross connects, security etc).

NGD’s 750,000 square feet tier 3 facility in South Wales has space to house up to 19,000 racks in private and shared halls under one roof. This level of scale is enabling space to be priced at around 50% of comparable London Docklands facilities which translates into a saving of around £10 million over 10 years for a 10,000 sq ft custom data hall.

This price differential raises the question whether it is still necessary to continue paying a premium for central London colocation facilities where real estate costs around £25 per sq ft, build costs are £10 million per MW, and power connection anywhere between £5 million and £15 million, while best case for outside London is at least half of these.

For ultra-low latency applications - such as high frequency trading – it is clearly necessary to use facilities very close together. However, with sub 1.5ms latency communications now achievable over 250 miles or so, some regional facilities are equally capable of supporting the remaining applications which account for about 90% of market requirements. In most cases, as well as being less expensive, power supply is also more abundant in these less congested areas.

For low cost space, and in some cases total renewable energy, some of the offshore colocation data centres in emerging locations such as Iceland, Sweden, Finland should also be considered – or even India, China, Australia. But any potential savings possible on space and power compared to the UK need to be weighed carefully against the inevitable additional operating costs and risks involved.

Such factors may prove a step too far when assessing international political and regulatory landscapes, cultural differences, security, latency, equipment installation/de-installation costs, proximity of IT service/repair organisations, travel time and costs in the event of unplanned downtime/catastrophe.

The UK colocation model is maturing to provide CIOs with greater choice and flexibility for reducing data centre costs, mitigate risks, accommodate unforeseen change, and gain access to the capacity needed today, while retaining future flexibility.

The added comfort of knowing that the UK still remains Europe’s safest destination for data centre location (Data Centre Risk Index 2013), makes staying on home turf compelling.

Dr Simon Orebi Gann, who was BP Supply & Trading CIO for more than seven years, is a non executive director of Aspen Technology and of Next Generation Data.