Outsourcing IT Services for Data Center Consolidation | Applied Research Project | | IS535 | |

6/10/2011 | |

Executive Summary

Outsourcing IT Services for Data Center Consolidation
California Natural Resource Agency’s Best Option for the Consolidation Project into Department of Water Resources Tier III-Equivalent Data Center
The Department of Water Resources for the state of California is responsible for managing “the water resources of California in cooperation with other agencies, to benefit the State's people, and to protect, restore, and enhance the natural and human environments.” (http://www.water.ca.gov/about/mission.cfm) In late 2009 the Department of Water Resources (DWR) launched a multi-million dollar project to build a modernized IT infrastructure that is to house several of the California Natural Resources Agency’s (CNRA) commissions and conservatories. This project would make DWR a certified tier III data center. There are only four tier III data centers currently operating in California. The project was broken into two phases; the first was the build-out of the IT infrastructure, and the second phase is the migration and consolidation of the various agencies computer rooms and data centers. The first phase was completed in early 2011 and consisted of: * Better performance. New servers boost performance of key business solutions and applications by up to four times while enabling system engineers to keep computer intensive workloads in-house. * Consolidated IT. The new infrastructure provides four times the capacity of new business solutions while reducing the server footprint by two-thirds, cutting power consumption by 40 percent, and decreasing cooling requirements by 50 percent. * Reduced operating expenses. The IT group has avoided USD 2.2 million in maintenance costs alone and reduced overall operating expenses by 25 percent. * Less downtime. High availability of business applications improves employee productivity and enables workers to collaborate with global colleagues on critical projects. * Greater flexibility and scalability. The new virtualized environment has reduced provisioning time for IT compute services by 70 percent, helping to support a changing and growing organization.
California has struggled to decrease the state deficit and has shifted budget priorities by looking at long term solutions that will decrease the states operational costs significantly. Cost savings are projected to be reported starting in fiscal year 2013 and will continue throughout the next 3-6 years creating a permanent decrease of overall IT costs being incurred in today’s California state IT structure.
“Since the beginning of my administration, I have been a strong advocate for rebuilding the state’s technology systems to make them work better and more efficiently for the people of California,” Gov. Schwarzenegger said…This action will increase transparency in spending, promote greater cost savings and define specific targets to reduce energy usage in our IT systems and further consolidate services.” (http://www.datacenterknowledge.com/archives/2010/02/11/california-plans-fast-data-center-consolidation/)
IT jobs make up approximately one-third of the states employable positions. Approximately half of these positions are expected to retire the next 6-10 years and the State has begun to phase these positions out the next 3-6 years with the consolidation of the agencies, commissions and conservatories. The consolidation project is a huge cost saving benefit to the state of California and is an absolute necessity in cutting the deficit for years to come. Essentially the costs savings would be obtained through the outsourcing of services to DWR’s data center. “Outsourcing IT infrastructure is a critical decision made by companies once they have concluded that a third-party provider can run the infrastructure more cost-effectively, with improved capital management, specifically defined service level agreements (SLA’s) and increased flexibility.” (Stevenson 16)

Project Background and Issues

In 2010 when Governor Schwarzenegger signed the executive order mandating that the consolidations be completed by the end of 2011 there was no input from the various agency’s expected to perform as to if the timeline was achievable. This management decision created an organizational problem, because most of these organizations being affected by the newly imposed mandate did not have a technical understanding of the new technology the tier III data centers were utilizing and an understanding of what it would take to successfully complete the migrations in time.

In 2010 DWR was tasked with the project to assist CNRA in migrating the various commissions and conservatories IT systems into the data center. DWR’s CIO had to decide if the current in-house DWR IT staff in collaboration with the CNRA staff was capable of handling the migrations or if outsourcing the project to a consulting team that specialized in large IT projects would be a better option. There were 13 total agencies, commissions and conservatories’ data centers that varied in size, and 16 more regional offices of DWR that needed to be consolidated before the end of the year.

In summary there were four risks that were identified as threats in successfully completing the migrations into the data center by the end of 2010: 1- The lack of technical expertise CNRA had with the new DWR data center/IT infrastructure. 2- Managerial and operational issues clearly defining the roles and responsibilities both DWR and CNRA could expect from each other. Both organizations were facing operational issues that would be expected in maintaining day to day operations while completing the migrations before year end. 3- Political challenges DWR would face in consolidating CNRA into the new data center forcing CNRA to relinquish their IT control.

Many of the organizations targeted to migrate into the DWR data center had not begun the necessary projects to consolidate their IT departments. Not only is resource expertise a technological issue, but the adequate number of resources available for the project is an operational issue for CNRA. Expected day to day operations need to be maintained, IT training for the CNRA staff needs to be coordinated and managing the new IT effort needs to be documented and processed into the new IT management for both CNRA and DWR. Process and escalation procedures, service level agreements (SLA), and back-up and recovery plans still need to be established. While the data center was built and completed for the migrations to begin, the ground work was not finished to provide a clear understanding of how the new tier 3 data center was expected to operate.

The other data centers within the state had very little experience to provide DWR as their infrastructures were established long before the mandate and they themselves were facing the same issues and risks in migrating their assigned agencies into their data center. There was a lot of work that needed to be completed before the migrations were to begin and meanwhile the target migration date was one that the state legislative committee was not looking at extending. Considering the project options to keep the consolidation efforts in house or outsourcing is an important decision as additional costs may be incurred in completing the project.

Business Solution Advantages and Disadvantages

Advantages of In-House Resources: Department of Water Resources IT Staff * DWR’s staff expertise on the data center infrastructure. * No additional costs would be incurred as all staff is salaried. * An understanding of internal processes and procedures is pre-established. * Thorough understanding of the state mandate and regulations.
Disadvantages of In-House Resources: Department of Water Resources IT Staff * The lack of resources available to manage day to day operations while completing the migration project. * Lack of qualified DWR staff capable of managing multi migrations simultaneously into the data center. * Political push back DWR staff would receive when migrating CNRA agencies commissions and conservatories into the data center.

Advantages Outsourcing Resources: IT Consulting Firm * Technological expertise. * Additional resource(s) allowing DWR staff to focus on day to day operations of the organization. * Project specific to ensure a successful completion of the migration project and project expertise in managing multi projects simultaneously. * Documentation expertise in assisting in the creation of the SLA, process and escalation procedures as well a back-up and recovery. * Additional resource to support CNRA during the migrations. * 3rd party involvement would decrease the political pressure between CNRA and DWR.
Disadvantages Outsourcing Resources: IT Consulting Firm * Additional costs into incur. * Lack of corporate culture understanding within the government sector. * Internal challenges in aligning current DWR staff with the migration project. * Comprehensive understanding of the state mandate and regulations.

Business Recommendation

After analysis of the options DWR’s CIO choose to outsource the consolidation project. While DWR has the adequate team and expertise needed in completing the consolidation project the DWR staff has day to day operations that need to be conducted in order to keep business operations running smoothly. Also, due to the first phase of the project not being completed in its entirety DWR staff has limited time to meet with the various CNRA agencies to complete the necessary work needed to make the data center comprehensive and complete before the end of the year.

Political issues could potentially threaten the project and directive from DWR could be seen as a power play between the agencies commissions and conservatories. By utilizing a 3rd party consulting firm this would decrease the negative tone of a highly sensitive project. Uncertainty of employment CNRA IT staff feels could threaten the consolidation project thus creating push back and threaten the end of year 2010 target completion date. “Through outsourcing, firms can take advantage of the best outside vendors and restructure entrenched departments that are reluctant to change.” (Gottschalk; Saether 10)

The consulting team would provide a bridge between the two agencies which is needed in adding resource support to both CNRA and DWR. Project management expertise in coordinating multiple work streams simultaneously is a benefit DWR would gain in outsourcing the project. Most mid level managers are functional managers that do not have experience in managing multi disciplinary projects of this scale while maintaining day to day operations.
“… most managers in the government sector do not have the technical expertise necessary to supervise complex IT projects. The disconnect in expertise and the functional experience necessary to carry out a project often causes delays because public managers still need training in the technical matters on the project. As such, public managers without the appropriate IT or client relation management specialization can be ineffective at best or a liability altogether when an IT project or a customer support portal is being carried out.

This is where outsourcing to private service providers conveniently comes in. The outsourcing companies who have the expertise and required industry experience to carry out projects of this magnitude successfully.” (Mutiangpili 12)

Additional benefits of outsourcing is the expertise of data center documentation that the DWR staff will need to have completed once all the migrations are finished. “…outsourcing is concerned with bringing new capabilities to the organization through important sets of skills.” (Gottschalk; Saether 9) This is needed to establish a clear understanding of DWR and CNRA expectations of the data center and of each other. Also, meet the additional state mandate of becoming a tier 3 data center in the State of California. In the end outsourcing the project will help in mitigating all identified risks and is the best plan of action in completing the project in the specified time frame and parameters.

Bibliography

"Building a Fluid Environment” (PDF). Intel Case Study. 2011. page 1. http://www.nascio.org/events/sponsors/vrc/Building_a_Fluid_Environment.pdf. Retrieved on June 3, 2011.

“California Plans Fast Data Center Consolidation”. Data Center Knowledge. Rich Miller.
February 9, 2010. http://www.datacenterknowledge.com/archives/2010/02/11/ california-plans-fast-data-center-consolidation/ Retrieved on June 10, 2011.

Department of Water Resources. 2011. www. water.ca.gov/about/mission.cfm. Retrieved on June 3, 2011.

Gottschalk, Petter and Hans Saether. Managing Successful IT Outsourcing Relationships. Hershey: IRM Press, 2006.

Mutiangpili, Jhoana. “Government Sector Outsourcing.” Tholons. March 2010: 12

Stevenson, Pete. “The Outsourcing Advantage”. Smart Business Orange County. February 2011: Vol. 5 Issue 11, p16-16, 1p

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[ 1 ]. (http://www.nascio.org/events/sponsors/vrc/Building_a_Fluid_Environment.pdf)