How to calculate the true cost of migrating to the cloud

Four steps to getting it right

While there are a number of things to consider when you’re contemplating a move to the cloud, cost is certainly high on the list. But calculating the cost of a migration is harder than it looks. Here’s how to do it right:

1. Audit your current IT infrastructure costs. 

A thorough understanding of the scale of your current operations is imperative, and an infrastructure audit is the first thing you should do. The audit will reveal what you’re currently paying to run IT and what your new cloud environment might look like.  This baseline will help you flesh out the potential cost of the cloud resources you’ll consume. 

You should take a holistic approach and consider the total cost of using and maintaining your on-premise IT investment over time, and not just what you pay for infrastructure. This calculation will include direct and indirect costs.

* Direct costs.  Direct costs are relatively easy to calculate, as they directly hit your balance sheet. The first bucket of direct costs include the hardware and software. How much do you pay (or have you paid) for your physical servers, software licenses, maintenance contracts, warranties, supplies, material, spare parts, and anything else?  All of these costs should be fully documented, and you can access them by having your accounting department pull invoices, purchase orders and payment records.

While you’re in data gathering mode, you should also figure out how much network bandwidth, storage, and database capacity you consume with your servers and other technology.  Also, it will be important to identify the details of your infrastructure, such as the number of servers you use, types of databases you use and storage capacity. You’ll use this information when calculating your estimated cloud infrastructure costs in upcoming steps.

The second type of direct costs are operational costs. These can include:

  • Cost of labor for maintenance of your servers, databases and other technology
  • Cost to maintain the facilities that house IT hardware, such as real estate, staffing, and other facilities-related costs
  • Cost of connectivity to the internet
  • Any other costs that can be attributed to the care of your IT

Finally, you should include the administrative costs necessary to maintain your IT department.  These can include the resources from other departments in your organization - Human Resources, Procurement, Finance, to name a few - that are dedicated to managing your internal and external IT staff.

You may consider these costs to be peripheral, as they may not hit your IT department’s balance sheet directly. But the hiring, onboarding, training, and management of IT employees and external consultants can get expensive, and other departments are dedicating many resources to do so. Thus, these costs should be considered within the purview of the cloud migration.

To estimate these administrative costs, you can interview key employees in those departments and check training logs to come up with the number of total hours spent, then multiply this total by an average hourly wage.

* Indirect Costs.  Indirect costs, while more difficult to calculate, are just as important as direct costs. The largest indirect cost is the loss of productivity suffered by your employees and customers if your IT infrastructure goes down. To calculate these costs, you can review log files to determine how often your servers go down and for how long, and multiply that time by an average hourly rate.  If you can estimate revenue lost due to downtime, that should be included as well.  Every company’s indirect cost situation will be different.  Indirect costs can be difficult to estimate, but are very important to consider, as they can make up a significant portion of overall IT costs.

2) Calculate your estimated cloud infrastructure costs. 

After you’ve determined your current infrastructure costs, it’s now time to calculate your potential cloud infrastructure costs. Your audit should give you a solid understanding of the network, storage and database capacity you need to run the applications you want to migrate to the cloud.

While cloud pricing used to be extremely complicated, cloud infrastructure providers have now simplified their pricing structures so potential customers can more easily understand them.  There are many cloud cost calculators available to give you an idea of what your cloud infrastructure costs may be, regardless of whether you’ve selected a cloud provider yet. Here’s a short list:

Since Thorn Technologies is AWS-certified, we are most familiar with Access AWS’ TCO Calculator let’s look at that.

The first step is to input your existing or planned on-premise infrastructure. Starting with the Basic calculator, you’ll have to input the following information:

      Servers

  • Server type
  • Number of virtual machines
  • CPU cores
  • Memory in GB
  • Hypervisor, Guest OS, and DB Engine, if you input a server type

     Storage

  • Storage Type
  • Raw Storage Capacity
  • Percent Accessed Infrequently (if you use Object Storage)

You can add rows for multiple server and storage types, if necessary.

The Advanced calculator will ask for more detail about your Servers and Storage, and consider Network and IT Labor in the TCO calculation. We prefer to use the Advanced version of the TCO calculator, as more detail will help you calculate a more accurate and holistic potential cost.

After submitting your information, the calculator will generate a report that summarizes the three-year TCO comparison by cost categories. You can then download a full report that provides detailed cost breakdowns, the assumptions and methodology used in the cost model, and frequently asked questions.

AWS also provides a TCO calculator for comparing the cost of running backup and archive applications in AWS compared to an on-premise environment. You can find that calculator here.

In addition to a TCO calculator, AWS provides a monthly cost calculator that allows you to approximate in great detail your monthly AWS bill. In order to use this calculator effectively, you will need in-depth knowledge of what AWS components you may require, the amount of data you need to store, and many other aspects of your potential cloud environment.

If you don’t have all this information yet, AWS provides a few common customer scenarios, such as a large on-demand web application, a marketing website, and a disaster recovery and backup scenario.

You can use these templates as starting points and adjust them to better fit your current situation. Though scenarios and details will surely change, this calculator will be helpful in providing a rough idea of the monthly cost for which you’ll have to budget.

3) Estimate cloud migration execution costs. 

The next step is accounting for the costs involved in executing the migration of your IT operations to the cloud. The scope of your current IT infrastructure and how much of it you plan on moving to the cloud will determine how large of a cost the migration process will be.  Here are the components to consider when calculating the cost of the cloud migration execution process:

* Moving data to the cloud. Moving data to the cloud is one of the most important steps of any migration. Cloud providers charge fees for transferring data to their systems, so these network costs have to be accounted for. Another high-ticket item may be the labor involved in ensuring your company’s data is properly synchronized once you deploy to the cloud from legacy systems.

It’s likely that your company will continue to use your applications during the cloud migration, so you’ll need to spend time and money to ensure that the data in on-premise systems doesn’t get out of sync with the data in the cloud. Having properly synced, up-to-date data is crucial to business operations.

For instance, we helped Sprint migrate its SMS messaging platform from on-premise to AWS. Sprint continued to use the software to deliver over 4 million text messages per day, and all of the customer and reporting data continued to accrue during the cloud migration.

To ensure data integrity, we took a backup snapshot of Sprint’s current infrastructure to ensure that no data would be lost during the transition. Then we created a cloud queueing platform so no new data would be processed by the legacy servers during the migration. Once the new cloud environment went live, only then were all new data requests processed to ensure all the data is synchronized.

In this case, there was a lot of work involved in ensuring data integrity during the migration. Each scenario will be different, but you will need to account for some amount of labor and money spent on making sure your data is in sync.

* Integration and testing of apps.  Unfortunately, some applications just aren’t ready for the cloud. Whether it’s large enterprise resource planning (ERP) systems with features and functionality that depends on on-premise servers, or legacy software that has been around for years, the cost of integrating and testing these apps after moving them to the cloud should be taken into account.

The first thing you should do is garner an understanding of how these platforms interact with your current operating systems and infrastructure. Next, you should determine the changes you’ll need to make for these systems to work well in their new cloud environment.  Then it’s time to make these changes and test the apps. All of this costs time and money, so be sure to budget for them.

* Consultant fees. Like Sprint, your company may not have all the skills and resources necessary to execute a cloud migration on your own. A cloud migration can be difficult, and you may need outside expertise and experience to assist.  An outsider’s point of view can be helpful on a number of fronts. Whether it’s mapping a strategic approach, developing a cloud architecture, executing the migration process, or all of the above, consultants’ knowledge and experience across many industries and situations can be very valuable.

A thorough understanding of your company’s strengths and weaknesses with respect to cloud computing and migration will determine whether you need the help of cloud experts. Then you can approximate the costs of these experts’ time based on the level of assistance you need.

If you do decide that you need a consultant’s help, make sure you understand the key things to look for when selecting a cloud migration partner. Your partner can be an invaluable asset, so you’ll want to ensure you select the right one.

4) Approximate additional post-migration costs. 

What will you have to pay after your cloud migration is complete? You’ll have to pay the monthly infrastructure costs that you calculated in Step 2, of course.  But you should also take into account the direct and indirect costs needed to maintain and improve your new cloud environment, and many of them will continue to be paid after your initial migration is complete. Costs such as continued integration and testing of apps, training, labor, security and compliance, administration, and others need to be forecasted in order to determine an accurate post-migration budget.

Considering costs vs. tangible and intangible benefits

After you’ve calculated all the costs, you might arrive at a large number. Yet it’s likely that number is smaller than all of the costs you’re currently paying for on-premise infrastructure. Cost savings is a big reason why you wanted to move to the cloud in the first place, isn’t it?

But in addition to costs savings, consider that the cloud also brings a myriad of intangible benefits that may be difficult to directly measure. It will allow your organization to be more flexible and agile so you can test and launch products faster and better react to changing market conditions. You won’t ever have to worry about buying and setting up new servers to handle high demand, since you can auto-scale cloud servers instantly.  And you’ll have peace of mind that there is a very minimal chance your applications will go down because of cloud providers’ high availability, load balancing and backup functionality.

A key benefit of cloud computing is the realization of hard cost savings, but these softer benefits are also strong reason to consider a move to the cloud.

Determining the cost and benefits of the cloud requires a strategic, holistic approach, so it’s important to understand and account for all of the direct and indirect factors that go into a cloud migration. If you’re considering the move, you might want to grab our eBook, “10 Steps to Ensure a Successful Migration to the Cloud.” It lays out the 10 steps you should take to plan and successfully execute your cloud migration.

Thorn Technologies excels in the development of cloud architectures, cloud migrations, messaging systems, and mobile apps for companies like Sprint, VMware, Experient, and many more.

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