26Jul 2013



Enterprise Cloud Computing : Understanding Your Costs and Potential Savings

Company, In the News by Digital Planet
Enterprise Cloud Computing


To understand the savings that can accrue to your organisation as a result of developing a Cloud Computing Strategy, you first need to fully understand:

  • Total current costs of running your IT environment
  • Costs that will be eliminated from your budget as a result of moving to a Cloud model

This may sound a little obvious but to develop a complete understanding of the Total Cost of Ownership (TCO) of your IT environment can be difficult.  For example, very few organisations when preparing their budgets, will allocate power and cooling costs to the IT department. Primarily they will be held centrally or possibly allocated on a headcount basis, which is not reflective of the true power and cooling costs for an IT department. Understanding infrastructure amortisation rates, downtime costs, productivity overhead, personnel costs and third party support costs and then getting a grip on how and where you will gain cost advantage when moving to a Cloud model can be a detailed and tedious process to get accurate.

Industry analysts report that average savings of 30% can be achieved by moving to the Cloud and you can be sure that this figure is based on substantial research. However, Cloud savings are very specific to the organisation looking to achieve these savings and it completely dependent on the quality of your current IT Environment.  Lets take Company A and Company B. Company A has invested in a Clustered virtualised server environment ; enterprise Storage Area Network infrastructure; resilient LAN and WAN; load balancing; security standards; Back-Up and restore policies and testing; trained IT team supporting the Environment and 24×7 support contracts with all the key vendors. Company B uses non clustered physical servers; mid-tier SAN; non resilient LAN and WAN etc etc. Company A may well achieve greater than 30% cost savings by taking a similar environment from a Cloud provider. Company B however may well be shocked to find that the Cloud is actually a more expensive solution than that which they currently manage. It is important when assessing the Cloud that you understand if you are moving to an Enterprise environment similar to your current environment or whether the solution you are moving to is of a far higher quality and standard. The basic rule of thumb is the closer your cloud solution is to your current solution, then the greater the IT savings.

It is a given industry standard that the capital outlay cost of a Server represents approx. 12.5% of the total cost of owning that server over the period of its life. So put simply, if you spend €5k on a Server, then the total cost of ownership for that server over its life will be approx. €40k. The other 87.5% of the costs are made up from 3rd Party support costs, personnel costs, power, cooling, space, downtime, patching, upgrades etc. The potential power of the Cloud is lost if it is seen simply as a replacement for buying hardware. The Cloud should not be seen as a replacing capital outlay on your server, it should be seen as an opportunity to replace the infrastructure led IT Services. Remember, if the server cost only represents 12.5% of the Server TCO, then if you purely move to a Cloud solution to replace the server, then you are only saving 12.5% of your total costs. The power of the Cloud should be in the services the Cloud provider can help you replace in your current environment.

Cost savings are not the only reason for you to investigate the Cloud, but for most companies, it is the key reason. Resilience, scalability and speed of deployment are all attractive benefits of Cloud solutions but the first step is to understand your current costs and then , and only then, are you in an enlightened position to understand the potential savings of Cloud.


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