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July 2, 2020

Cloud migration cost calculator: What’s the total cost of ownership (TCO)?

Moving to the cloud will realise untold benefits with significant cost advantages.

But the reality is that cloud migration can be complex and without effective analysis and planning can leave you being faced with unexpected costs and a bit of a runaway train.

Why is this? Firstly, it is important to understand the common pitfalls to avoid with any cloud migration.

So let’s dive into a few important points.

Cloud migration pitfalls

There is a fairly well trodden path to cost out any proposed cloud services:

  1. Audit your current infrastructure costs
  2. Calculate the cost of your proposed cloud services (using the calculators provided by all the major cloud providers)
  3. Calculate your cost savings as part of your business case analysis

However, there are a couple of important flaws in this process.

There is a broad assumption that you will replicate your existing infrastructure, services and applications workloads in the cloud – a ‘lift and shift’ cloud migration.

Then any services with sub-optimal utilisation will transfer further inefficiencies as your cloud utilisation expand over time.

The missing step is to analyse your existing applications and business processes to see how best they should be optimised and utilised in the cloud. Then you will get a true reflection of the Total Cost of Ownership of your cloud services.

How to calculate the cost of cloud computing?

Step 1: Audit of current infrastructure costs

By firstly identifying the cost of your current IT infrastructure, you can help identify areas where saving can be made, plus determine what your future cloud environment will look like.

You will need to evaluate both direct costs (hardware, software, maintenance contracts & licences) and indirect costs (operational costs, staff, housing, energy consumption, security etc).

Whilst compiling the direct costs of your on-premise IT infrastructure, it is highly useful to document compute capacity, data storage requirements etc. in order to calculate Total Cost of Ownership (TCO).

Step 2: Cloud readiness assessment of your IT environment & operational processes

This is the critical step. Not every application or workload will be suitable for a ‘lift-and-shift’ migration strategy. Optimising and re-working business applications for a cloud consumption model can unlock substantial cost benefits.

In order to develop an accurate and optimal roadmap for your cloud deployment, you need to analyse and understand:

  • Which applications/workloads are best suited to the cloud?
  • What’s the best deployment model for each application?
  • How do the costs and total cost of ownership (TCO) compare (in year 1 and the future)?

Typically, these questions can be answered with a Cloud Readiness Assessment, which involves a technical discovery to catalogue business applications, processes and operational workload patterns to determine optimal cloud strategy & design.

Only then can you prioritise workloads and applications for cloud migration and design an optimal cloud strategy and deployment model.

Step 3: Cloud migration Total Cost of Ownership (TCO)

Now that you have a detailed understanding of your application workloads, you are able to more accurately forecast your optimal consumption costs to ensure you only pay for the capacity & resources your business needs and actually utilises. All at the lowest possible cost.

Calculating Total Cost of Ownership provides a direct comparison between the Capex costs of an on-premises IT environment and the Opex costs of cloud services. All the leading cloud service providers all have a TCO calculators.

  • AWS Total Cost of Ownership Calculator
  • Azure Total Cost of Ownership Calculator
  • Google Total Cost of Ownership Calculator
  • Cloud TCO calculations – what to watch out for?

There are a few important things to take into account from any raw TCO calculations.

  • Cloud migration costs: Depending on the scale and complexity of the migration.
  • Data centre costs: While you’re in the process of migrating your applications, you’ll still need to operate your on-premise data centre, particularly if you will retain any legacy applications ‘on-prem’. Remember to calculate facility costs, computing resources and local personnel.
  • Unexpected costs: Like any project, cloud migration carries a degree of risk. Applications may not function as expected compared to the on-premise application. So evaluate the potential risks in your cloud migration project as part of the planning process.

Pricing models

There are three main pricing models from the major cloud providers: Pay-as-you-go; Spot instance pricing, and Reserved Machine Instances (RIs).

Generalising, you should typically estimate costs based on Spot instances, followed by Reserved Machine Instances, then Pay-as-you-Go.

Spot instances use spare computing capacity at significantly discounted rates compared to Pay-as-you-Go pricing. The only difference is that Spot Instances can be interrupted when the extra capacity is required back making them best for flexible workloads.

Whereas Reserved Machine Instances help active customers save on long-term VM usage by committing to longer-term deals.

Allocating cloud resources models in this priority order will help you ensure the lowest Total Cost of Ownership (TCO), but you should also consider how to optimise cloud usage, as well as monitor resource use.

Cloud Migration Costs vs Business Benefits

The world never stands still. Evaluating the benefits of your cloud strategy should be interwoven with your wider business plan, objectives and growth/revenue targets (if applicable).

By having a clear view of the longer-term business strategy, it is easier to “sell” the benefits (and justify investment) to the board, as your cloud strategy is ties to the success of the wider business.

While secondary benefits of maintaining competitiveness, increasing agility, or enhancing business resilience in today’s fast-moving environment will be important, having a well-costed cloud transformation roadmap will help realise your true cloud potential

Ready to start your Cloud Transformation Journey? 

At Comtact, we help develop secure cloud migration plans for a transformational experience to realise the true benefits of your cloud ambitions – for the short and long-term.

Why not book a cloud readiness assessment, or talk to one of our cloud specialists to learn how we’ve helped unlock the cloud for some of the UK’s leading mid-Enterprise organisations.