HPC TCO Week: Article 3 Calculating Total Cost of Ownership
Throughout this week, we have been building toward the actual Total Cost of Ownership 101 that we are going to outline today. We started by outlining the fundamental financial differences (On Prem (Capital Expenditure) and Cloud (Operating Expenses) are tough to compare). Next, we learned "low utilization" and "low prioritization" makes the cloud financially appealing.
Today, we're going to click-down even further into those scenarios where the decision between On Prem and Open Cloud might be a tougher decision. We're going to peel back the financial layers on comparing the Capital Expenditure of buying tin to the Operating Expense of moving to the cloud.
Step 1: Understand that even Capital Expenditures have a lifeline
Even though the decision to buy hardware may go through the Capital Expenditure process and comes from the Capital Expenses line-item on the P&L, it still actually has a timeline to it. Whether your organization buys tin every year, every other year, or every fifth year, that purchase has a certain lifeline for your company. Amortize that expense over the expected life of the investment. This puts the capital expenditure into a vector variable, easier to compare with the run-rate expense of cloud. Think of it like taking your orange and painting it red. It's still an orange, but it looks a bit more like an apple.
Step 2: Cloud is outsourcing, rebalance your system administration costs
Not every organization transitions to cloud overnight (in fact, most do not). However, with the cloud shouldering more of the computing workload, this frees up resources previously allotted to system administration. Think intelligently about how this work will be reallocated and use these savings towards the financial benefit of moving to the cloud. These fees can be the real estate fees at data centers, power, and cooling, and staff to manage the system. Many of the services (backup and support) that come with an On Prem solution will also apply in the Cloud, but they could be financially material--and must be considered.
Step 3: Intelligently migrate to the Cloud as a Change Management Project
A frequent mistake is for companies leadership to make the decision to move to cloud without truly enabling the userbase for the transition. Without users supporting the decision, they may actively resist the move to cloud (and therein companies are still running their existing On Prem solution, but also paying an On Prem provider) or they upset their user community and have employee morale problems to solve. Think intelligently about your users, confirm that cloud will work for them, and build an actionable and pragmatic plan to make the navigation. Even better, put in thoughtful cloud governance so that they can optimize their research for a cloud environment.
In conclusion, the algebra for a cloud migration can be best described as:
Cloud Run Rate >< Capital Expenditures/Life of the Asset - Rebalanced Administration Costs +/- Net Impact to Services and Support + Migration Change Management
Thus, to summarize: If your organization has low utilization and/or low prioritization, moving to the cloud will save your organization substantially. If your organization does not have low utilization or low prioritization, but it refreshes hardware often, requires large administration, services, or support, it might be time to take a long hard look at an Open Cloud provider.
Stay Safe Out There!