Cloud economics: Avoid cognitive bias, 'sunk cost fallacy'

Read time 2min 30sec
Steen Dalgas, cloud economist at Nutanix.
Steen Dalgas, cloud economist at Nutanix.

The business world is moving away from a product centric-economy to a subscriber economy. In a subscriber economy, companies work closely with their customers, understand their changing needs and need to be able to respond quickly.

“This drives a fundamentally different organisational structure and a need to reallocate resources to support a more agile way of working,” says Steen Dalgas, cloud economist at Nutanix.

Dalgas will share his insights about ‘cloud economics’ at the ITWeb Cloud, Data Centre & DevOps Summit, to be held on 11 February at The Forum in Bryanston. Speaking of how the technology team would need to reorganise itself to support this, he says the biggest obstacle to a successful transformation is ourselves.

“During my presentation, I will provide examples of behavioural economics, including cognitive bias and the sunk cost fallacy, which can lead to some very bad business decisions.”

He gives some examples of the traps he has seen with public cloud, for example the lift and shift of an on-premises environment unchanged into public cloud, ‘undersizing’, where the public cloud vendor lowballs the estimated cost, or paying for instances that are not being used.

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Another problem, he says, is when shadow public cloud happens – when the business goes straight to the public cloud, by-passing IT and running the most expensive instance types.

“The Nutanix Cloud Economist Team have built a methodology for accurately pricing a solution in public cloud. We right-size instances where possible and then map these into the appropriate public cloud instance, and this is done for both compute and storage,” adds Dalgas.

He says Nutanix then looks at some of the hidden costs – support, connectivity,the cost of moving data either from the cloud or between zones, and growth.  “We will walk through an example and then compare this with alternative platforms, such as Nutanix, VXRail and traditional IT platforms.We may also consider softer benefits in the case if requested by the customer,” he explains.

“Our key takeaway is that it is essential to prepare detailed unbiased financial analysis to support any major business decision, including where to run IT applications – using externally sourced data from other customers,” he adds.

There is a place for public cloud but it should be determined on a use case by use case basis – considering a balanced view of financial, security or compliance, and business agility factors, says Dalgas.

“Many of the non-financial benefits of public cloud can be obtained through a private cloud approach.A hybrid cloud strategy with a mix of on-premises and public cloud use cases will deliver most value and flexibility to the organisation. This is based on studies of real customer data over the last two years,” he concludes.

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