The Two Cloud TCO Calculation Mistakes You Didn’t Know You Were Making (And What They Can Cost You)
If you’re like most CIOs beginning the process of evaluating whether to move your company’s infrastructure to the cloud (or if you’ve already decided to move to the cloud and need to determine which one you should move to), you might be overwhelmed by the complexity of the task before you. After all, there are millions of potential cloud configurations available and, on top of having to understand the dizzying array of options, you need to make the financial case for moving to the cloud with an accurate cost-benefit analysis.
To begin, you’ll first need to understand the total cost of ownership (TCO) of your new cloud. Your cloud TCO calculation will inform every element of your decision-making process, from whether you should move to the cloud at all to which one you should choose. It will help you balance the organizational pressures from leadership that wants to move to the cloud so that your company isn’t left behind with the need to have an accurate cost-benefit analysis before you commit to any cloud service provider or configuration.
Unfortunately, too many organizations begin this process by relying on inaccurate figures that can lead to an inaccurate cloud TCO calculation. To ensure you properly project your cloud costs, you’ll want to avoid the following two critical mistakes.
Mistake # 1: Approaching the Process with an On-Premises Mindset and Failing to Right-Size the Cloud
If you attempt to calculate your cloud TCO by seeing what it would cost to forklift your existing infrastructure into the cloud in what’s known as a "like-to-like" comparison, you’ll get an inaccurate estimate that does not account for the lower capacity that companies need once they migrate to the cloud. In fact, one of the biggest benefits about the cloud is that you only pay for what you’re actually using instead of the extra on-premises capacity that you need to build to accommodate occasional surges. That’s why basing your cloud TCO calculation on your current on-premises infrastructure without modifying it for the cloud will likely result in expensive over-provisioning.
Instead of performing a like-to-like comparison, you should form your cloud TCO calculatation based on your right-sized cloud. Right-sizing is the process of identifying the optimal compute, storage, and network settings that will enable you to achieve your maximum performance requirements at the lowest possible cost. When the provisioning of your compute, storage, and network resources matches your real-world usage, you can avoid making an inaccurate estimate that may vastly overstate the costs of migrating your on-premises workloads to the cloud.
Mistake # 2: Using Incomplete Analysis that Fails to Right-Size Correctly
Unfortunately, not all cloud TCO calculations based on your right-sized cloud provide the accuracy that you need to make an informed decision. Many are actually more of ballpark estimates because they have failed to account for all performance metrics essential for right-sizing, and they may rely on metrics that have been averaged instead of considering peaks and valleys. These imprecise assessment methods may cause you to estimate a configuration scenario that is not based on the nuances of your performance requirements and does not support your business objectives.
To accurately right-size your cloud, you must analyze the following performance metrics for each machine in your infrastructure:
- Peak CPU Utilization
- Allocated and Peak RAM usage
- Observed Storage On-Premises (capacity and current occupancy)
- Disc IOPS and Bandwidth
- Usage Patterns: identify how often compute and storage resources are on, idle, and unused
By identifying your true right-sized cloud – which means your compute, storage, and network resources are optimally provisioned for the cloud – you will have the most accurate cloud TCO analysis to ensure you’re making the best business decisions.
(Learn more here on how the Cloudamize platform automates performance analysis and right-sizing to precisely calculate and compare your cloud TCO across AWS, Azure, and GCP.)
How a Large Financial Services Company Right-Sized Their Cloud TCO Calculation and Saw Cost Savings of 42%
When a large financial services company was considering whether to purchase more hardware in its existing data center or to migrate to Amazon Web Services (AWS), a like-to-like comparison indicated that the cloud would be more expensive than housing their infrastructure on-premises, and as a result they nearly decided to forego moving to the cloud. What the analysis missed was that the company failed to calculate their TCO based on their right-sized cloud. When they used Cloudamize to calculate the TCO of their right-sized cloud, the calculation showed them that migrating to the cloud would bring enormous cost savings. Ultimately, they were able to save 42% (between $1.5M and $2.2M annually) by moving their infrastructure to AWS.
The Biggest Outcome of All: Confidence in Your Decision
When you’re responsible for making the financial or business case for migrating your company’s infrastructure to the cloud, there’s a lot of pressure to not make mistakes that can cost your company dearly and instead make decisions to implement technologies that move your organization forward. To understand which cloud service provider is the best fit for your organization in terms of both cost-effectiveness and performance, you must have an accurate analysis of your cloud needs based on precise metrics and to be able to compare your options across multiple cloud service providers. If you conduct a manual analysis or take a shortcut using a free lightweight calculator, you expose your organization to the possibility of over-provisioning (and over-paying) for your cloud needs. But when you arm yourself with deeper analysis from a sophisticated platform, you can be confident that you’re making decisions to help your business to achieve the greatest cost savings.