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Getting a handle on cloud TCO


Johannesburg, 24 Feb 2020
Thiani Ramaya, Microsoft Lead, Westcon-Comstor Sub-Saharan Africa
Thiani Ramaya, Microsoft Lead, Westcon-Comstor Sub-Saharan Africa

Not too long ago, the cloud was hailed as the massive cost saver. It followed a compelling logic: service providers could amass infrastructure that was distributed among many different customers, since the scale drove down costs. And companies could offload the inefficient infrastructure they had to own to run business services.

But what was logical on paper doesn’t always reflect in reality. In recent months, there has been a small but clear counter-cloud trend. Companies are repatriating certain workloads and stacks away from public cloud – the mainstay of the cost-scale argument.

Don’t misinterpret the trend: the momentum is very much towards the cloud and those repatriated assets still often land in a private cloud or something similarly modern. People aren’t moving back to mainframes.

Yet cloud’s promise of cheaper technology has been replaced by a more complicated value picture. Hidden costs and powerful new advantages alter the underlying costs in unforeseen ways. This has made it tricky to determine the total cost of ownership for cloud.

“To ascertain the TCO for a cloud-based solution, it is necessary to understand and incorporate both quantitative and qualitative aspects that relate to comparing the benefits, and risks, to an on-premises IT solution,” says Thiani Ramaya, Microsoft Lead at Westcon-Comstor Sub-Saharan Africa.

Defining infrastructure

You don’t know where you are or where you are going without a point of reference. One reason fuelling repatriation is because many jumped into the public cloud with wild abandon, divorcing traditional systems as quickly as they could. They did use those systems as a benchmark for the new cloud deal, but many made the mistake of making a one-for-one comparison.

“It is critical to understand that traditional on-premises and cloud-based solutions have different costing cycles,” Ramaya explains. “They also have significant differences in capital versus operational expenses. On-premises solutions have higher upfront costs and lower recurring fees. In contrast, cloud-based solutions usually have a more consistent annualised expense.”

Cloud has qualitative costs that are often not considered because they are not hard costs. These can include system downtime and the effect on productivity, agility, skills development and staff overheads. Such factors skew cloud costs and shouldn’t be disregarded. Ramaya also adds that the general concept of infrastructure is often too narrow, which will influence the benchmark and TCO expectations: “Determining actual infrastructure costs must also incorporate the total cost of ownership that is calculated over a period of time; this includes direct costs of hardware, software, operations and administration. And indirect costs such as end-user operations and downtime, maintenance, technical support and labour costs.”

The cloud TCO recipe

Calculating TCO is challenging when comparing on-premises and cloud-based service costs. Some of the costs may not be clearly defined or budgeted for in a single area of the business. The prices of hardware may sit within the IT budget, but enablement and skills costs could be within the HR budget.

There are also multiple levels to a cloud TCO, says Ramaya: “To uncover any potential hidden costs, a company must use a framework to measure on-premises TCO that extends to components that are specific to cloud models/architectures such as PaaS, SaaS, IaaS. This must be done in stages or levels. As an example, at level one, cost elements are considered collectively for hardware, software, networking and services.”

She recommends the services of experienced consultants who have built frameworks to define cloud TCO. But don’t go in blind. There are key elements that every TCO framework should reflect:

  • Purchase price (eg, costs of goods, supplier’s price);
  • Acquisition costs (eg, costs of the total operational process during procurement);
  • Associated costs (eg, customs duties and taxes, payment terms);
  • Cost of ownership (eg, stock management systems);
  • Maintenance costs (eg, maintaining a cloud-based platform’s performance that hosts services);
  • Usage costs (eg, use, value, operations, services, etc);
  • Non-quality costs (eg, compliance processes, adoption and change processes); and
  • Disposal costs.

There are also numerous tools to help manage cloud budgets, many provided for free by vendors and solution providers. These include Microsoft Azure Cost Management Cloudyn, VMware vRealize Business for Cloud, Google’s Budget API, AWS Budgets and Amazon CloudWatch. Other third-party tools include Cloudability, Flexera and Cloudchekr.

“Transitioning to the cloud does change the TCO analysis model, as many traditional TCO elements are eliminated, such as direct costs, downtime and productivity costs, capital expenses and end-of-life requirements around hardware. This allows business strategies to evolve and focus on the flexibility and agility of a cloud deployment model,” ends Ramaya.

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