How to Calculate the Cost of Applications in a Cloud Computing Data Center
The simple fact is that cloud computing data center won’t necessarily be the best option for your company. When evaluating the cloud option, it is important to accurately calculate the cost of applications in a cloud computing data center and compare it to the costs of your current data center.
In creating an economic model of an application, determine all the costs in a way that allows you to do a fair comparison. You can add the various component costs of a data center together to calculate the Total Cost of Application Ownership (TCAO).
Here is a fairly comprehensive list of the possible component costs, with notes:
Server costs (A): With all other hardware components, you’re specifically interested in the total annual cost of ownership (including hardware support plus some amortization costs).
Storage costs (B): A proportional cost over the entire storage area network (SAN) or network attached store (NAS) needs to be determined, including management and support cost for the hardware.
Network costs (C): Remember that even if an application moves into the cloud it might still generate network traffic. Accessing this cost requires careful, case by case evaluation.
Backup and archive costs (D): The actual savings on backup costs depends on the backup and archiving strategy you plan to implement when the application moves into the cloud.
Disaster recovery costs (E): In theory, the cloud service will have its own disaster recovery capabilities, so there may be a substantial savings on disaster recovery.
You need to clearly understand what your cloud provider's disaster recovery capability is to ensure that your data and processes are adequately protected.
Data center infrastructure costs (F): A whole series of costs including electricity, floor space, cooling, building maintenance needs to be calculated, but is hard to pin down to specific applications. For that reason, try to calculate a floor space factor for every application.
For example, if your data center is only 40 percent full, the economics of putting lots of additional capacity into the cloud is not financially viable. If you're running out of room in your data center, the cloud will be a much more economical choice.
Platform costs (G): The annual maintenance costs for the application operating environment need to be known and calculated as part of the overall costs.
Software maintenance costs (package software) (H): This includes the software’s annual maintenance cost. However, if the software license is tied to processor pricing or part of a bundled deal, this must also be calculated as well.
Software maintenance costs (in-house software) (I): Although all in-house software involves these kinds of costs, it might be difficult to calculate the portion that is associated with each application.
Help desk support costs (J): Understanding the different support requirements is key to making the right decision on the cloud.
Operational support personnel costs (K): There is a whole set of day-to-day operational costs associated with running any application, some of which support a given application, such as database tuning and performance management.
Infrastructure software costs (L): A whole set of infrastructure management software is in use in any installation, and it has an associated cost.
To be thorough, you should calculate the TCAO for every application and make sure that the overall total for all applications reconciles with the actual data center costs as recorded in the company accounts. If there is any discrepancy, the model needs to be adjusted accordingly.
It would be nice if you could simply compare the Total Cost of Application Ownership to the cost of running the application in the cloud and, if the cloud costs were less, schedule its move to the cloud. Unfortunately, you must also be concerned whether the application costs are actually recoverable, or how much of the costs are actually recoverable.