Cloud TCO is a formula from Cloud Economics used to calculate all costs and benefits related to a cloud computing project. It is used to determine the true, all-in costs which then can be compared to alternatives.
Although some cloud providers offer a TCO calculator, organizations should perform their own evaluations, since each cloud deployment is different, and gaining an understanding of the costs savings realized by a cloud project can be equally elusive.
Factors that can impact the total cost of ownership include the type of business, the functions and processes supported by the cloud, cost of training and education, impact on facilities expenses including power and cooling, regulatory impacts, cloud risk management and improvements due to a cloud project such as increased efficiency, faster decision-making, or reduced capital expenditures.
When defining a cloud TCO model existing and future infrastructure must be accounted for. Some attributes of a TCO model should include:
Keep in mind that a TCO model is just that – a model – and should be adjusted over time as new factors and attributes are exposed. Every organization will have its very own TCO model since no two organizations have the same starting and ending points when it comes to cloud migration.
Calculating lifetime TCO for software must include not only the cost of the software itself but also the costs relating to the infrastructure that software runs on.
Thus, a comprehensive on-premises ERP solution would include the costs of:
Whereas a cloud-based ERP solution would take into account the costs of the software either as a purchase or license cost plus
A lower TCO simply indicates a lower total cost for the useful lifetime of a given project or asset.
Some methods of lowering TCO include
When it comes to lowering Cloud TCO, factors to consider include
Although cloud migrations can lower overall TCO, your mileage may vary. Every organization must evaluate its unique business configuration and make its own assessment.
Every existing on-premises asset’s TCO must be considered before Cloud TCO can be evaluated. Some costs that will disappear when migrating an application to the cloud include
These costs can be compared to the predictable monthly costs incurred by shifting operations to a cloud provider and can reliably be used to calculate the TCO for both on-premises and cloud-based solutions.
TCO demonstrates the real, complete cost of a given solution over its lifetime – usually measure in 3-year or 5-year TCO. Management consider TCO when deciding to build or buy, when deciding if a solution is worth the investment, or when deciding whether to host an application on-premises or in the cloud. Reducing TCO increases an organizations bottom-line profitability. For example, a TCO reduction of 5 percent in an IT budget of $10 million translates to $500,000 directly to the organization’s bottom line.
Traditionally TCO reduction is driven by waste reduction and capital re-deployment into opportunities that promise a higher return on investment (ROI). Gartner IT Key Metrics data says that nearly 60 percent of all IT costs are related to the acquisition and maintenance of IT infrastructure. Many organizations are migrating to cloud-based solutions to eliminate those sunk IT infrastructure costs and free up capital for more profitable ventures.
To achieve TCO reduction an organization must evaluate existing hardware and software assets and evaluate where waste can be eliminated and where migrating to subscription-based cloud solutions can free up capital previously allocated for hardware, data center, and maintenance costs.
Some TCO reductions that have emerged from cloud migrations include:
All of the above factors that contribute to a lower TCO translate to increased profitability for the organization. To get your own TCO for VMware Cloud on AWS, see http://vmctco.vmware.com/