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Determine IT operating costs to show the value of cloud migration

Any IT project requires an assessment of present and predicted costs and savings. Those amounts fall into two categories: Capex and Opex.

IT operating costs assessment is a vital part of proposing a cloud migration. IT must demonstrate both the department's and the cloud's business value. It's time to baseline and estimate IT operating costs.

Capital expenditure (Capex) is a nice, solid number that anyone can get their head around. An IT platform, bought via Capex, is the sum of the amounts paid for the necessary servers, storage and network equipment. Based on a defined renewal period, the hardware is replaced periodically -- with that Capex cost planned into the IT budget. Nice and simple.

Things start to get less solid for a running platform. This involves operational expenditure (Opex): the total cost of operating that platform.

Few organizations plan IT operating costs well. They know, and plan for, rolling maintenance costs to the hardware, as this is part of the original purchase contract. Determining the costs of the human resources involved in operating the platform requires access to data on the full time equivalent costs of each person on the IT team, which may not be simple for an IT manager to acquire. Additionally, many variables are not under one team's control: Data center, power, and other utilities maintenance may be under facilities rather than IT. The rise of BYOD means that much of the cost of providing and managing access devices -- such as mobile data costs -- are hidden within individuals' expense accounts.

Many IT teams rely on simplistic chargeback or showback mechanisms, rather than trying to calculate real IT operating costs. Without massive effort and expenditure on controls, monitoring and measurement, it is impossible for an organization to fully understand the costs of running IT. With IT often seen as a cost center, it's unwise to spend more just to demonstrate how true it really is.

Another means of ascertaining the overall value of IT to the business uses a total value proposition approach, calculating whether a system has an overall positive or negative effect on a business.

Reviews require a solid baseline of existing IT capital and operating costs. Without a baseline, organizations cannot calculate the benefits of a cloud migration.

What does a cloud cost?

With IT often seen as a cost center, it's unwise to spend more just to demonstrate how true it really is.

Many public clouds charge on a predictable recurring basis: per user per month, tiered number of transactions per month or similar structures. It is therefore reasonably easy to calculate future cloud-based hosting Opex costs -- but the present state still needs a number.

Assume that users will access the future state platform similarly to how they access the present state. Therefore, discard the hidden variable cost of BYOD. Unless the move to the public cloud results in data center closure, then the existing facility costs will remain -- although power costs will drop to some extent.

Still, at best, cloud migration planning is comparing a best efforts guess on the IT operating costs of the present state against the more predictable cloud ops costs of the future state. In itself, this is not a bad thing: The business gains better visibility of the actual IT costs -- provided the IT team has good visibility at a granular level of usage and costs from the chosen cloud provider.

This is not just a case of switching to a clear monthly bill for the IT platform, nor is it a case of having a list of IT operating costs broken down by usage types, for example by server, storage and network resource. A flexible, real-time cloud management portal should enable the IT department to define how data is presented to them -- by virtual machine or container, by role, by individual user.

With this level of granularity, the IT shop can offer effective and real chargeback or showback to the lines of business -- which use this data to make informed decisions.

For example, Department A gets a report showing that its cloud usage cost the business $1300/month. Is $1300 high or low? The cost can be compared to other departments, or the department can drill down to discover the major users and decide if such usage is warranted. IT can present higher-level reports that benchmark departments against each other for some general IT functions, and identify best practices and promulgate them through the business to drive down costs and optimize performance.

It is probably too late and too difficult to determine the overall costs of an owned IT platform -- unless it is a complete replacement system wherein the mechanisms to monitor, measure and allocate the costs are built in from the start.

The transition to public cloud gives IT an opportunity to take bold initiative and provide the business with real data on IT operating costs. When a public cloud provider offers useful expense data, IT can go beyond simplistic Opex reporting, and start to provide real value to the business around how to optimize the platform usage costs.

Next Steps

Calculate the value of a private or public cloud

Complexity and cash in multicloud computing

Public cloud pricing models reinvented for new ops

This was last published in May 2017

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