costs Often the key factor When it comes to moving IT to the cloud. In practice, figuring out the cost of moving workloads or business processes to the cloud is complicated.
And, just as with on-premise hardware, the total cost of ownership of cloud systems is more than the “price of the ticket”. Cloud computing’s flexibility and cost-based pricing models can make it difficult to predict the lifetime costs of a project or system. Adding capacity or performance is easy, but incurring additional costs is also easy.
In some cases, costs have become more predictable as the industry matures. Extracting data costs Cloud storage Often thought of as a “hidden cost” of the cloud and certainly disliked by chief information officers and service users.
But, in reality, cloud service providers are open about such costs. They can be planned for, and services are designed to minimize costs. Firms have become more mature in their use of the cloud and are better able to use it in the most effective ways. This includes using “cold” storage Long-term storage, but not for frequently re-accessed data. Or, leveraging the cloud’s unique features instead of moving existing workloads to the cloud wholesale.
Enterprises currently run 30% to 40% of their work in the cloud, says Adrian Bradley, head of cloud transformation at KPMG – but he describes their journey as “relatively messy”.
“When people move to the cloud, it’s really tempting to manage the migration based on throughput rather than quality,” he says. “Throughput is nice and easy to measure, but when you go to the cloud, you’re more likely to ask questions around whether you’re getting value from it.
Instead, organizations are looking for a greater degree of IT transformation through the cloud, and this is prompting them to look again at total cost of ownership.
TCO, cloud and on-premise costs
Total cost of ownership (TCO) in the cloud Aggregates all operational costs associated with a task or business process.
At one level, calculating a basic cost figure for the cloud is relatively easy. Cloud companies list their prices for storage, compute and other key costs. All this has a price.
Customers who buy cloud capacity don’t have to factor in labor, security, IT systems management or power, cooling and property costs. These are all budget items that should be considered for on-premise systems and are rolled into the per-unit cost.
Importantly, companies also avoid the need for capital expenditure on hardware and are able to charge cloud consumption fees instead. Operational, or Opex, budget. This removes financing costs and frees up capital to invest elsewhere.
All of these are positive, but not all costs can be completely eliminated. IT departments still need staff to manage and manage cloud environments. As KPMG’s Bradley points out, cloud operations are often run by more skilled, more expensive staff than on-premise operations, and cloud experts are less likely to be offshored.
Customers need tools to manage their cloud estate. Security and Backup and restore will also be required. Most of these costs will be shared with on-premise systems and may decrease as the percentage of cloud systems increases.
But it’s a mistake to think that the cloud will eliminate all on-premise costs, especially labor. Indeed, organizations may face higher costs in some cases, especially if they need to hire people with specialist cloud skills that command a premium. “It’s really hard to get a granular breakdown of who spends how much time doing a function and who should be charged,” cautions analyst Tony Lock of Freeform Dynamics.
Additionally, organizations must allow for migration costs. Applications may require different licenses for cloud use and may require modifications, rewrites or even a ground-up redesign. This will add labor costs directly or through a systems integrator, consulting firm, or cloud or software company’s own professional services.
Finally, “hidden” cloud costs haven’t gone away entirely. Costs such as data egress, where companies pay to retrieve, return or even simply copy data to another application, are more familiar than they are. But they are still a factor.
So are data duplication costs, especially if the business needs to keep multiple copies of data or run computations in different Availability Zones that may have different costs for the same service.
Cloud services may offer variable pricing, discounts for pre-booked capacity (rather than on-demand usage) and discounts for off-peak usage.
Providers also typically offer their best prices to customers who agree to service a certain volume in advance. This can be significantly cheaper than “spot” charges, but it makes TCO difficult to calculate and may encourage overprovisioning of cloud services.
“Entry and exit costs are important, but generally, I think they’re pretty well understood,” says KPMG’s Bradley. “But what we often see is that enterprises using the cloud end up spending a lot more than they expected.”
Plan for cloud consumption
Cost is no longer the main driver for moving to the cloud, if it ever was.
“Cost is an important factor, but it’s usually not the primary reason to do something,” says Locke of Freeform Dynamics And, he says, it’s been going on for 10 to 15 years now. “The cost saving thing was always the hype.”
But if organizations are looking for value from the cloud, they need to understand its lifetime costs.
Over-provisioning, or over-utilization, is perhaps the biggest financial risk of moving to the cloud due to its ability to scale.
Research by HashiCorp, a software supplier, found that 20% to 40% of an organization’s cloud spending is on “redundant, underutilized and orphaned infrastructure” because it’s too easy to move workloads and data to the cloud.
A clear understanding of the total cost of cloud technology, and how it compares to on-premise systems – with all their (inevitable) overhead – is essential to avoid waste and make the most of the cloud.