The corporate mantra “Utilise TCO instead of purchase price when making purchasing decisions” means evaluating a project’s Total-Cost-of-Ownership over its lifetime period as the primary cost factor. It requires the corporate buyer to scrutinise the entirety of the investment as opposed to just the upfront purchase price.

Like an iceberg, where the majority of the ice is below the surface, the total cost of ownership of a security system is typically much larger than the upfront purchase price. More often than not in today’s security purchases, the decision rests mainly on the purchase price, however, the intelligent and savvy buyer looks at TCO.

When purchasing a cloud based security system, TCO analysis is needed because the purchasing and expense comparison are quite different between a traditional on-site solution and a cloud based solution. You do not, however, need to examine every last item in the TCO to do a comparison between the two. This article focuses on the major cost variables worthy of comparison.

Components of Total-Cost-of-Ownership

Start-up costs: hardware, software, licensing, installation, configuration, engineering, network design, data migration, cyber security software, cyber security configuration, training, evaluation, purchasing time.

Operational costs: power, back-ups, hardware upgrades, software upgrades, OS upgrades, hardware repair, security patches, cyber security audits, cyber security reparation. And also: downtime? Repair? Data Export? Disposal?

Do we really need to compare all of the cost variables above over the operating period or can we narrow our analysis? We will assume a life of 5 years for our analysis. This is long for IT equipment, but average for security systems. For the purpose of this analysis, we are going to focus on the top six areas of difference between a cloud and an onsite video surveillance system. We have found that this yields an accurate comparison.

Total Cost of Ownership
With an on-site system, there are dozens of operational costs that need to be included

Six areas of simplified Cost-of-Ownership

  1. Hardware and Software Costs
  2. Configuration Cost
  3. IT Operational Cost
  4. Redundancy and Continuity Costs
  5. Maintenance & Warranty Cost
  6. Upgrades & Enhancement Cost

Hardware and software cost

The Hardware and Software Cost consists of 4 major components: Cameras, Networking, Recording and Analytics computers (DVR/NVR), and VMS Software. The difference in camera and networking hardware between an on-site system and a cloud system is negligible. The service provider will install nearly the same cameras and switches for either system and the difference arises from the Computer/DVR/NVR and the Software.

In the case of an on-site installation, a digital network recorder (prices range from $1,500 to $8,000 for a 15 camera system) will be selected and installed. $1,500 gets you basic recording functionality. $8,000 gets you a powerful PC with RAID storage and longer retention periods. If you need true redundancy, reliability, and encryption the hardware costs could reach $20,000. You need to decide at purchase time on the exact capabilities you need for the life of the system. Changes after the fact will be costly.

Once you add up all the operating costs of an on-site system, you will find that the TCO is well beyond the cost of a quality cloud-based platform

With a cloud system, the onsite hardware will typically be about $500 for 15 cameras. There is, however, no decision needed up front about the amount of storage, the features, or the capabilities. You have flexibility to change as you wish, when you wish.

Configuration and software installation costs

Configuration and software installation costs are significant for traditional VMS solutions. So significant that the problem is usually outsourced to a company that specialises in it. There may not be a line item for this, it may be buried in the purchase price of the hardware or software or it may be part of the installation cost, or it may be hourly.

Configuration costs escalate higher when you are coordinating multiple locations and want central management. Central Management will typically require an additional server. The more sites you have, the more individual systems must be configured and installed. With a cloud system, the set-up is minimal for the first site, and each additional site is immediately connected to the same cloud. All these setup, configuration, and software installation costs simply disappear for a cloud solution.

IT operational costs

The IT Operational costs are where most buyers fail to do an accurate analysis. On the cloud side, you pay a subscription cost - so the cost is clear. With an on-site system, there are dozens of operational costs that need to be included. Surprisingly, one of the largest costs is power. The US Energy Information Administration estimates the cost of powering an on-site server at $731 annually[1].

Power, bandwidth, back-ups, operating system updates, software maintenance, and data disposal are all things that every customer’s IT department has to accommodate. These are not optional costs, and they are not cheap.

Top 10 costs avoided by deploying a cloud system
Many costs can be avoided by deploying a cloud system

An IT department can choose not to invest in the operating systems updates, patches, and other software maintenance, but this dramatically increases the risk of cyber security vulnerabilities. Cyber Security has become the number one disruptive cost in the operating of on-site video surveillance systems due to the vulnerabilities generated by putting addressable devices on the company’s network.

If the devices vulnerability isn’t enough, there are inbound risks associated with opening ports and other networking requirements to enable users to see video from remote locations. Cloud systems do not operate this way. The stored video is viewed from the cloud and what transmits from the site to the cloud is encrypted. The cloud system avoids all the IT overhead, support, maintenance, power, and security issues of the on-premise system.

Redundancy and continuity costs

Another high cost in operating on-site systems is attributable to the system’s continuity and the redundancy of the video storage. Whether your company is seeking a simple off-site back up for security purposes or full disaster recovery, the achievement of redundancy in an on-site system can be easily 3-5 times the cost of the hardware and software system you’re running. In a cloud system, redundancy is already in the subscription. There is no incremental cost.

Once you add up all the operating costs of an on-site system, you will find that the TCO is well beyond the cost of a quality cloud-based platform. But we’re still not done.

Maintenance and warranty cost

Maintenance for on-site systems includes the hardware and the software maintenance for the DVR/NVR. There is typically a clear cost for the software maintenance at 20% per year. A hardware maintenance plan can be purchased as well to replace any broken hardware. There are clear costs to keep these running. The cloud solution does not have any of these costs, they are included in the subscription fee.

Costs over five years
Maintenance for on-site systems includes the hardware and the software maintenance for the DVR/NVR

Upgrades and enhancement cost

Finally, the concept of continuous enhancements. A TCO analysis should include the benefit of receiving new features and functions without having to do the work of installing them and upgrading the software or hardware. When you buy a DVR/NVR or licence a traditional VMS, you cannot benefit from any software enhancements without updating or replacing your system. The productivity and security benefits of this can translate into real $$ quite quickly. Upgrades can take one or more days of IT time, which translates to thousands of dollars.

Total savings on cloud systems

So, what’s the total savings? How much can you save by using a cloud based system? Unfortunately, there’s not a specific number because each company’s system is different. But there is a range. IT professionals frequently quote cloud system costs ranging from an increase of 15% to a decrease of 45% in cost versus an on-site system.

In some cases, it might cost a little bit more, but the customer receives reliability, redundancy, cyber security, and a lack of downtime and other headaches, making the extra cost worth it. In most cases, however, the customer receives a long list of benefits AND saves money. So, take a look at these factors on your system. Can you afford NOT to put your physical security in the cloud?

[1] US Energy Information Administration, January 2013 in conjunction with Ehow.com