The race is on. An unprecedented upsurge in data center construction is testing stakeholders

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The interconnected digital world

Streaming a movie . . .
Checking social media . . .
Reading the news on a mobile device . . .
Accessing the doctor’s office online . . .

What do these daily activities have in common? The use of data. Lots of data. Data that require organization, storage, processing, and dissemination.  

Indeed, the appetite for instant network access, computing resources and big data has spread to almost all areas of the economy, driving up demand for configurable servers, storage, applications and services.

Adding to this demand are advancements in artificial intelligence, the Internet of Things and 5G broadband, which are set to continue driving data traffic.

Data centers growing bigger, faster, smarter

It is no wonder then that data centers are growing bigger in scale to keep up with this data proliferation. According to the IDC, the uptrend for hyperscale centers is projected to reach its peak in 2018 before tapering off to 2016 levels by 2021. Even with the projected slower growth of non-hyperscale data centers and decline of internal centers, overall data center capacity is still expected to have grown each year from 2015 to 2019 before reaching the new normal of 2016 levels in 2021.

Speeding to market

In addition to growing bigger, data centers today are also expected to come to market 2-3 times faster than before, as well as provide improved power usage efficiency, innovative design, and cybersecurity. Facilities are also expected to better accommodate potential disruptions such as those posed by natural disasters, emerging technology and market changes.

Discipline trumps “fast and loose”

The way things have been done in the past—the fast and loose approach—isn’t going to cut it with the larger more complex capital project programs, especially given the increased competition in the market.

As data center capital projects and portfolios grow exponentially in size and complexity—often under unforgiving time and budget constraints—so, too, must capital project management techniques evolve.. For these larger projects, the financial and reputational risk is simply too high for any given stakeholder to take a passive role in capital project oversight.

  • A mature capital project management program is a way to impose discipline on any data center capital project. It comprises the following five key functions to keep a project on track:
  • Strategic program management office (PMO) to manage planning and operations including, costs, schedules, contracts
  • Steering committee to oversee scope and management changes based on accurate progress reports
  • Internal audit to ensure regulatory and safety compliance as well as organizational design that maximizes workflow efficiency
  • Risk monitor to identify and mitigate risks in the commissioning, pre-development, and delivery phases of the project lifecycle
  • Independent advisor to provide an objective perspective in scaling program capabilities through project planning and delivery

Benefits of a mature data center capital project management approach . . .

There are myriad ways in which a mature project management approach can help stakeholders successfully construct a large-scale data center or deliver multiple data center projects within a portfolio.

. . . for the enterprise customer

Improve quality and gain competitive advantages. Enterprises today are often challenged to ramp up data capacity while dealing with tight timeframes, shrinking budgets, and a host of third-party vendors. On hyperscale builds for companies like Amazon Web Services, Google and Microsoft, where demand elasticity and timely product delivery are crucial, ensuring delivery meets all targets can be a monumental task.

This is where mature capital project management comes in: sophisticated management techniques—such as robust reporting and relevant metrics from developers around critical paths, index monitoring, scheduled integrity checks, and probabilistic modeling of predictive forecasts—provide enterprises with important information to make sure that the project is on track.

Having robust project governance and controls also mitigates the risk of losing sight of quality in favor of speed to completion.

. . . for the developer

Make better decisions. Data center capital projects have simply grown too consequential for developers to make decisions along the way using past experience and instinct to guide them. The rising complexity and risk in scaling up a program or entering a new market are driving more advanced project management approaches for planning and execution across the board.

A mature capital management program requires well defined Project Execution Plans (PEP), Quantitative Risk Analysis (QRA), rigorous risk monitoring and mitigation plans, and more accurate cost and schedule forecasting practices. Strong performance management standards with clear key performance indicators (KPIs) within a robust reporting framework are also necessary.

While it may seem like a lot of work, such a program yields many competitive advantages: It enables the developer to establish formalized agreements with well-defined contracts and change management procedures upfront to mitigate scope creep pressure from blue-chip customers. It also allows the developer to demonstrate mature project management capabilities, which tends to increase customer and lender confidence and sets the developer apart from the competition.

. . . for the lender

Decrease costs and time to market. As capex spend increases, and with the significant opportunity cost of lost revenue, some lenders are adopting a mature project management approach—in particular, shoring up risk assurance services—to safeguard investments. In fact, we are seeing more non-controlling equity partners of major real estate funds retain a third-party risk monitor to provide broad-based development audits and project reviews on a recurring and ad-hoc basis. With the right expertise, benchmarking standards and reporting, early warning signs can be triggered, providing insight to investment delivery risk and averting bigger problems down the road.

Well-tested approaches are improving the odds of success in other sectors

While the capital planning and management practices, forecasting methodologies, risk analysis and control environments suggested above may be new to the rapidly developing digital infrastructure sector, they are well-tested in other sectors with large-scale portfolios. For enterprises, developers, and lenders alike, adopting a mature capital management approach can increase their chances to maintain or gain competitive advantage in the data center market.  

 

 

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Greg Chiasson

Principal, Capital Projects & Infrastructure (Technology, Media and Telecommunications), PwC US

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