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The 3 main areas in your cloud cost analysis

Technically, the benefits that cloud technologies bring are usually obvious (but be careful, that does not mean it can be applied at everyone, do not think I’m as fundamentalist).

However, unlike other fashions in technology where we as professionals have left behind, there is an almost particular benefit that suits us all: the ease (or slight difficulty) to assemble the case of an implementation of cloud and get what all CIO or IT manager wanted to achieve throughout his life: let the CFO with an open mouth to see that someone from IT comes with a solid justification of a project (do not laugh! you know what I mean!).

Let’s admit it, we have tried throughout our entire career to persuade that friend who is two doors to the left and we have never had the opportunity (“you’re missing a zero”, “amortizations”, “the Capex”, “that Opex “).

The cloud offers a clear way to estimate their differential costs (the ones from the project plus the savings by not buying new hardware, for example). Below you’ll see the three basic sections your estimation should contain to put them in a cash flow (assuming you already did the study of sizing, of course):

  1. Cloud service cost.

With more or less components depending on the provider you choose. Let’s see it in this example using Microsoft Azure IaaS modality (virtual machines in the cloud):

  • Virtual machine uptime (costs vary by size and processing resources, replication capabilities, networks and use of solid state disks).
  • Storage (in Azure, you only pay for usage, not for the declared size of the units).
  • Downstream (Azure charges you outbound traffic from their datacenters –except in some services-)
  • Transactions (based on the IOPs you consume).
  • Networks (eg. Monthly hours VPN)
  • Software integration costs in the service (if they are different from the local alternative)

Remember that there are some discounts according to the type of contract you make.

  1. Costs of the new hardware (or the on-premise alternative to the cloud service).
  • The obvious: servers, storage drives, network cards, controllers, etc.
  • Maintenance service (usually around 10-15% of the value of the servers).
  • OS licenses and database. Attention to this! Remember that, in the case of Azure, computers already have the licenses included in the cost and that might mean a significant savings.
  • The calculation of kWh of your equipment. Do not forget to calculate the cost of additional cooling. A common guideline is based on the value of the server multiplied by 1.5. Recently, for example, I did a study in which 4 servers with storage and refrigeration units consumed a total of 9kWh, giving an expense (in this case, in Peru, $ 600 per month)
  • Integration costs of software on the local server (if different to alternative cloud)
  • Tax impact of amortization (careful! Do not make the mistake of placing them directly in the calculation)
  1. Human Resources value-added tasks.
  • Yes folks, we have to measure this and definitely does not mean that you will be free of human resources by addressing a proposed cloud implementation (you will still deal with networks, administration of the database, operating system maintenance, monitoring, etc.).
  • What we should figure here is what the differential cost is for the people now dedicated to high-impact projects instead of leaving them sitting watching the lights of servers waiting for green one tuning into red. They will mean hours of people now redirected into more professional work (and them happy).
  • Above all, do not forget to estimate (or ask the CFO) the opportunity cost by using the company’s calculations. That will ostensibly impact expenditures that occur in the future (in cloud services, for example) versus the payment of all of part of the hardware in advance.

Clearly, as you are aware of the reality of your company you will find something more or less to be included in these sections, but this as a good starting point.

Of course, if you need any help with this, we offer this free service to our customers prior to any business proposal, so they can have a clear picture before embarking on such an initiative.

Successes in your calculations and until next time!

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The tip of the post this time left Buenos Aires to reach an inner city of Argentina that don’t envy the beauty of any other: Rosario. A typical American restaurant environment (huge!) like those dedicated to rock chains is in the boulevard Oroño and with a style that blends with the quality of Argentine beef and river fish in the area. Don’t miss it. Beware, get there early. It’s called Rock & Fellers and is already opening other branches in the area.


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