Cost analysis : On-premise vs Public-cloud (an idea on dollars saving)

If I need to explain the most basic difference between [non-cloud & on-cloud] to a non-technical person, I will take an example from the realty sector. Just like in the realty sector, a flat or apartment is property without land and a house or villa is property with land. Sameway non-cloud (on-premise) has every asset under your ownership, which in case of on-cloud one pays only for the services used, no infra will be in your ownership if you terminate the subscription. This statement is over-simplified, but conceptually good for understanding.

Here it would not be fair to suggest to the audience what to opt [non-cloud or on-cloud].? For many years (almost ~3-4 years), I wanted to share detailed information for business-entities & communities to make a well informed decision. I have collated all relevant data-points i.e. explanation of the high-level cost-calculation approach, high-level comparison of cost for next 10 years, expected US$ saving on yearly basis, and so on.

I have tried to share maximum information with readers & audience of the open-world with complete honesty. At the same time, I also wanted to understand others' perspectives about cloud’s futures. Because I feel a telecom-market like situation is yet to come in the cloud-market where we will see issues like customer retention & price-war/counter-offer by competitors.?

Maybe I am overthinking, please do share your thoughts. That’s why I wrote two articles on following topics with complete details

• Price-war, cloud-portability & future of cloud
• Cost analysis : On-premise vs Public-cloud (with data-points)
• HLD - Migrate My Infrastructure (MMI) on magic-button-click (In-progress, will share soon)

Cost analysis : overview & approach

Market has the presence of various types of businesses with different complexity levels which could have complex or simple customer journeys and operational activities. Despite having different complexities in each business around the world, most of the businesses have standard [business-functions] and [backend-operations]. Architects from [telecom-domain], who have designed architecture for [non-telecom-domains], they would be able to understand or foresee standard [business-functions] and [backend-operations] of any business domain very quickly because of [TM Forum]. So one can visualize that sales, purchase, product-catalog, inventory, payroll & employee management etc are very common [business-functions] of any organization, and to have IT applications for these [business-functions] for a [mid-size] business-entity should require a similar range of [capex-&-opex-cost].

To understand the complete perspective on cost, let’s do the [capex-&-opex] cost analysis to run IT applications for such businesses on [on-premise or on-cloud] infrastructure. In this process, we shall do the side-wise-side cost analysis of [on-premise or on-cloud] for 10 years. In order to complete [capex-&-opex] cost analysis, the information is structured in following steps and each step is elaborated in further sections.

• Step - 1 : Consider few examples of business scenario for the cost analysis
• Step - 2 : Explain the cost components for managing IT ecosystem for those business scenarios
• Step - 3 : Calculate license-cost of software tools required for application development??
• Step - 4 : Assessment of hardware sizing to run required software tools & applications (e.g. Core, Memory, Storage, etc. required for virtual-machines)
• Step - 5 : Calculate cost of physical (bare metal) machines
• Step - 6 : Calculate [capex-&-opex] cost in non-cloud environment with same hardware & software consideration
• Step - 7 : Calculate cost of infrastructure on on-cloud environment with same hardware & software consideration (Price sheet)
• Step - 8 : Calculate [capex-&-opex] cost in on-cloud environment
• Step - 9 : Present overall cost analysis with both [on-premise & on-cloud] approaches?
• Step - 10 : Conclusion with 10 years expense analysis

Step-1 : Examples of business scenario for the cost analysis

One can consider the following business domains for which we might need to write the software applications. Businesses of these customer is not mission critical but market has huge chunk of such businesses e.g.?

1. Car dealer : who sells cars of different make, who sells 100 cars daily, who has 100 employees in the showroom at all levels, who performs sales, purchase, inventory, car-catalog, salary, likewise other functions.
2. Hospital : which has 100 beds, 500 patients in OPD, 50 doctors on panel, one medical store inside, most of the health functions exist e.g. material purchase, inventory management, item issue for different departments, nurses & staff, their salary, etc.
3. Academic institutions, training institutions, etc.?
4. Manufacturing unit
5. Agency which provides security personnel & solution
6. Agency which deals in recruitment, consultancy, 3rd party payroll.
7. Agency which deals in recruitment, consultancy, 3rd party payroll.

Step-2 : Explain capex & opex cost components for managing IT ecosystem

Following cost-components are standard components which contribute to overall [capex-&-opex] cost.

1. Infrastructure cost, includes mostly one-time cost of physical machine or virtual machine or container,? networking, electricity, cooling (AC) system.

1. Software license cost, includes one-time & recurring cost of softwares required at development time & runtime.

1. Application development cost, includes cost of application development to run actual business operations. This could be vendor cost if outsourced or salary cost if inhouse.??

1. Maintenance cost, includes the salary cost of the team who are involved in software and hardware maintenance.??

1. Operation cost (managed service cost), includes the salary cost or vendor cost of the team who are involved in running business operational activities e.g. handling customer issues like billing dispute, OTP not received, product not arrived, etc, writing adhoc scripts for reporting, extracting data etc. This cost is segregated between Level-1 (1st team for receiving & resolving application related issue), Level-2 (2nd team for resolving issue after Level-1 team), Level-3 (3rd team (the development team) for resolving issue after Level-2 team),

Step-3 : Calculate license cost of software tools required for application development?

Note : Software tools in the list are just examples for our objective for doing the cost-analysis. I prefer free & open source software (FOSS) to save the substantial recurring cost on a periodic basis. However, support cost is always there for both types of softwares, be it FOSS or COTS (commercial-of-the-self, license fee applicable).

Note : Software tools in the list are not intended to influence anybody’s technology selection criteria.

Step-4 : Assessment of hardware sizing for required software tools & applications

Note : Above sizing in the list are just examples for our objective for doing the cost-analysis. Cost of infra increases for implementing NFR requirements e.g. Scalability, High-availability, Security, Performance, User-response time,

Step-5 : Calculate cost of physical (bare metal) machines

These are the physical machines which will host and run the required IT application & solution. On these physical servers, virtual-machine would be created, so the size of physical-machine would be approx. sum of size of all virtual-machines considered in previous sections.

Step-6 : Calculate capex & opex cost in non-cloud environment?

Step-7 : Calculate cost of infrastructure on on-cloud environment with same hardware & software consideration

This section explains the AWS pricing sheet for the same software & infrastructure service what we considered in a non-cloud environment. Reference to AWS pricing calculator (Price sheet)

Step-8 : Calculate capex & opex cost on on-cloud environment?

Step-9 : Present overall cost analysis with both [on-premise & on-cloud] approaches?

Step-10 : Conclusion with 10 years expense analysis

In order to draw some high-level conclusion, let’s apply flat multiplication on yearly cost for every next year, and 10% of one-time cost of 1st year is assumed every next year just to cover any hidden expenses. Last column in the table below shows the US$ customer can save with a non-cloud solution.

Here it would not be fair to suggest to the audience what to opt [non-cloud or on-cloud].? For many years (almost ~3-4 years), I wanted to share such details for business-entities & communities to make a well informed decision. I have collated all relevant data-points i.e. explanation of the high-level cost-calculation approach, high-level comparison of cost for next 10 years, expected US$ saving on yearly basis, and so on.

While doing this cost-analysis, I felt there are some opportunities also for [free-lancers & start-ups] from open-market who can help [business-entities] for [cost-components (A, B, C & D) in non-cloud] and [cost-components (A & B) in on-cloud] solutions. Most likey [business-entities] do not trust the free-lancers community, because they don’t own anything and remain like an advisor, while problems are killed by making their hands dirty.

About author

Profile : Rajesh Verma - Brief profile

Source : link for this article here

Series : S1 (Architecture & design)

Episode : S1E2 ([S1-A&D] MMI : Cost analysis : On-premise vs Public-cloud)

Author’s approach : Rajesh wants to share his learning & experience gained throughout his career from various sources. Author started the series on architectural topics and this article is one of the episodes in that attempt. Author feels that lots of information is available on various forums, but scattered here & there. Episodes in this series will be designed for most of the relevant topics in architecture-&-design, published gradually and organized in logical sequence. Principally episodes will have linkage with other episodes, so that readers can have proper connection among the topics and would be able to correlate with ongoing activities in their software life. Topics for example will be related to functional architecture, integration architecture, deployment architecture, microscopic view of mostly architecture-building-blocks (ABBs), security guidelines & approach to comply, performance KPIs & engineering, git branch & DevOps enabled automation strategy, NFR aspects (e.g. scalability, high-availability, stability, resiliency, etc.), commonly used architecture styles & design patterns, cloudification approaches, multi-tenancy approach, data migration, channel-cutover & rollout strategy, process standardization & simplification, greenfield rollout & brownfield transformation journeys, etc.

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