By Louise Bowman, Manon Buettner, Donna Kruse and Jo Peterson
Most IT organizations are undertaking a transformation to a hybrid environment, mixing traditional IT, public and private cloud resources. Total Cost of Ownership (TCO) is still the best way to create a business case that enables a lifecycle view across the entire operation.
No matter the cloud workload, there are 3 things that every organization must consider:
- Fixed Costs (e.g., people, power and space)
- Up-to-date and Optimized Pricing (e.g., price cuts, tiered pricing, recurring savings)
- Intangible Costs – Take a closer look at what you get as part of cloud services
TCO is not just about project life cycle, but any product’s lifecycle. Especially for cloud, TCO is about creating a holistic view of operational costs.
This view of costs is critical in conducting comparative analysis of provisioning alternatives, and especially important when considering using public cloud offerings. TCO also adds credibility to unit costs or rates created for service catalog offerings, including the creation of service bundles.
With costs for the current environment and estimated costs for the new environment, comparisons can be made for a variety of options. Accurate numbers are an important part of your overall analysis of deployment to a cloud environment. Knowing where to find numbers and cloud pricing structures can make this effort straightforward.
TCO emphasizes considering costs of end-to-end operations from project inception, design and implementation to operation and decommissioning. For many, the effort to identify these costs is viewed as too time consuming and overly complex.
Here are a few ways to execute your TCO compilation more effectively and still produce quality cost figures:
- Hardware acquisition costs. Check asset records, recent purchase orders, or vendor price lists.
- Hardware maintenance. Apply a percentage to hardware-acquisition costs based on average maintenance levels.
- Software. Since it’s often difficult to find costs under MLAs, develop a ratio of hardware to software based on general levels experienced for the operation.
- Technical support, connectivity, power, facilities, security, disaster recovery and other administrative costs. Again, develop a ratio of costs based on general operating expense levels.
If actual costs are available, those should be used. However, in most cases, when assessing the cost alternatives for a discrete workload to be moved to either a private or public cloud, using ratios will prove adequate.
With the base costs collected across the projected useful life of the hardware (depreciation schedule), the resulting multi-year cost can be expressed as an annual cost. These costs represent the base costs of operation.
There are a number of one-time activities to consider when moving a workload to the cloud. These costs include the costs of both commissioning and decommissioning existing equipment. Some one-time implementation and shut-down costs include:
- Data Migration
- Data Cleansing and Archiving
- User and Technical Support Training
- Standardization, Upgrades and Customization
Often overlooked items include penalties for early termination of licenses or leases, expenses to write off assets if not redeployed, and staff costs to wipe hard drives and disks, as well as packing, shipping and junking.
There also are some new costs that can result from a move to a public cloud environment. The best way to estimate these costs is to run a cloud pilot using data from the existing environment as the baseline. The goals of the pilot should be carefully defined in advance, with timelines and measurable success criteria clearly stated.
Cost impacts from a move to public cloud include:
- Expanded network capacity
- Vendor invoice (if using public cloud)
- Administration of invoices from cloud vendor
- Staff to manage vendor and client relationships
A public cloud is normally billed on a usage basis rather than a fixed contractual amount. The invoice from a public cloud provider will be treated as an operating expense from a financial perspective. These costs will most likely have an impact on the way costs have been budgeted and funds allocated to the IT budget.
Personnel costs include the cost of the infrastructure teams that are needed to handle the “heavy lifting”— managing hardware and the related supply chain, staying up-to-date on data center design, negotiating contracts, dealing with legacy software, operating data centers, moving facilities, scaling and managing physical growth – all the things that an enterprise needs to do well if it wants to achieve low infrastructure costs in the areas discussed above. For example:
- IT hardware procurement teams are needed. These teams have to spend a lot of time evaluating hardware, negotiating, holding hardware vendor meetings, managing delivery and installation, etc. It’s expensive to have a staff with sufficient knowledge to do this well.
- IT operations staff is needed 24/7/365 in each facility.
- Networking teams are needed for running a highly available network. Expertise is needed to design, debug, scale and operate the network as well as deal with the external relationships necessary to have cost-effective Internet transit.
- IT personnel are needed at all phases of the design, build and operations process.
About the Authors
Louise Bowman is an SAP Account Executive for NIMBL; Manon Buettner is principal & CEO at Nuvalo; Donna Kruse is Regional Sales Manager for TeleProviders; and Jo Peterson is vice president of Cloud & Converged Data Services for Clarify360. All are members of Cloud Girls.