Clouded Crystal Ball: Beyond Cloud TCO Calculators

Every major cloud provider (AWS, Azure, and GCP) has an online calculator designed to help organizations estimate the total cost of ownership (TCO) associated with migrating to their service. These tools generate cost estimates based on variables such as server workload, database and storage infrastructure, and the amount of network bandwidth typically consumed by the organization. Michael Bathon, Vice President and Executive Advisor, IT at Rimini Street, sheds light on forgotten costs and talks about a future beyond cloud TCO calculators to understand the real price and benefits of migration to the cloud.

In reality, those who rely too heavily on these TCO calculators are likely to be hit with sticker shock once they start receiving their monthly bills. The truth is that these tools mostly focus on things like compute, storage, and data I/O, but rarely consider all the costs that organizations need to consider when considering migrating to the cloud. At the same time, these tools do NOT show the full real value that the public cloud can offer.

Here are five other costs (and benefits) that every organization should consider when trying to analyze the true total cost of ownership of migrating to the cloud:

1. Disaster Recovery

Generally speaking, many organizations do not have the disaster recovery (DR) solution they to wantbut rather the disaster recovery they can afford. In cloud environments, organizations can usually get the disaster recovery they need without exorbitant costs. Why? Because in the cloud, you can create a DR environment that mimics production without paying for idle resources. The benefit of an active DR should be used when calculating the total cost of cloud ownership. Most online calculators don’t take this into account, let alone the cost of lost business continuity if and when a disaster were to occur.

2. Labor

Another high cost that gets lost in redesigning the TCO calculator is the cost of employee attrition. The calculators will take into account some benefits of increased productivity, but they do not take into account the additional benefits an employee will receive. Organizations may consider labor savings when considering migrating to the cloud, but do they consider the cost if they do not do move to the cloud? There may also be training costs involved to build the skills of the internal IT team on the cost side. But ultimately, if your talent doesn’t have cloud experience on their resume, they could quickly become useless in this industry. They know it and they will look for companies to expand their skills.

Learn more: Highway to Heaven: Creating a Solid Cloud-Based Business Roadmap

3. Complete self-assessment

It can be a pain, but to do a full TCO analysis, companies need to look at the total costs of their current operations. Every software, hardware, and IT talent needs to be considered, and it can be a tedious process because it’s easy to overlook things. The IT team needs to connect with the finance department and track down every invoice from the past year to create a clear picture. Particularly in large organizations, it is simple for a hardware support contract of $5,000 or $10,000 per month to get paid without a doubt. Still, all of this should be considered when determining your actual cloud cost savings.

4. Ongoing data center support

Many organizations may need to let part of their critical systems live in a data center because the cloud service does not provide full support. In this case, an organization may consider using a colocation center to move software running on older operating system versions to shut down its own more expensive physical data centers. For older systems that aren’t x86 compatible, a migration to the cloud can be tricky, but some companies will physically move and run your hardware – or provide hardware that runs an operating system like Solaris or AIX.

5. Other organization-centric costs

Every organization has several other costs associated with migrating to the cloud, but they can vary widely depending on the size and type of business and their specific individual needs. For example, some organizations may overlook the cost of data transfer, while others may forget to consider a heavy, data-intensive application that performs constant communication. Organizations should also create an administrative role to manage these costs on a month-to-month basis. Unless each line item is reviewed regularly, TCO calculations are unlikely to be entirely valid.

Other things to consider include add-on services specific to each cloud provider and discounted pricing for those who pre-commit to longer-term contracts. While these deals may sound tempting, it’s another reason to diligently examine current spending trends versus what’s likely to be spent in the cloud. Even if a provider offers a discounted price for a three- or five-year commitment, organizations can still overpay if certain services are simply not used.

A recent case study from AWS describes how Airbnb transitioned to a flexible pricing model while discontinuing its use of On-Demand Instances. As a result, Airbnb reduced storage costs by approximately 27%, while switching to UltraWarm storage for Amazon OpenSearch Service resulted in a 60% reduction in logging infrastructure costs.

Learn more: 7 multi-cloud challenges and how to overcome them

Conclusion

Overall average cost reductions are difficult to calculate as they vary depending on the individual use case, but most studies published by the big three cloud providers indicate a range of 25% to 40% savings. In reality, however, there’s no way to know if that number is accurate unless you roll up your sleeves and dive deeper into the real TCO. It can be a long and arduous process involving multiple departments to properly assess what is being spent now and what would be spent when moving to the cloud, but it is the only way.

Once this work is done, the numbers become more “real” allowing organizations to avoid unnecessary sticker shock and perform accurate TCO analyzes that will benefit the organization in the long run.

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