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How to Create an Economic Model of a Data Center in Cloud Computing

It’s hard for most organizations to accurately predict the actual costs of running any given application in a cloud computing data center. A particular server may be used to support several different applications. In some organizations, there may have been attempts to tie computing costs to specific departments, but if so, the model is likely to have been very rough.

The simple fact is that the cloud won’t necessarily be less expensive and it won’t necessarily provide the same level of service as your data center. Your own data center may have a service level agreement with a 99.999 percent uptime record. Will your cloud provider offer that same level of service? Probably not. You have to weigh how critical that level of predictable uptime is to your internal customers.

In creating an economic model of an application, determine all the costs in a way that allows you to do a fair comparison. Here is a fairly comprehensive list of the possible costs, with notes:

  • Server costs (A): With this and all other hardware components, you’re specifically interested in the total annual cost of ownership, which normally consists of the cost of hardware support plus some amortization cost for the purchase of the hardware.

  • Storage costs (B): In situations where a storage area network (SAN) or network attached store (NAS) is used for an application, a proportional cost over the whole SAN or NAS needs to be determined, including management and support cost for the hardware.

  • Network costs (C): This needs to be carefully considered because the fact that an application moves into the cloud does not necessarily mean that all the network traffic it generates disappears.

  • Backup and archive costs (D): The actual savings on backup costs depends on what the backup strategy will be 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 consequential savings on disaster recovery. However, you need to clearly understand what your cloud provider's disaster recovery capability is.

  • Data center infrastructure costs (F): A whole series of costs including electricity, floor space, cooling, building maintenance, and so on can’t easily be attributed to individual applications, but can usually be assigned on the basis of the floor space that the hardware running the application occupies. For that reason, try to calculate a floor space factor for every application.

  • Platform costs (G): Some applications only run in specific operating environments. 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): Normally this cost element is simple because it comes down to the software’s annual maintenance cost. However, it may be complicated if the software license is tied to processor pricing. The situation could be further complicated if the specific software license is part of a bundled deal.

  • Software maintenance costs (in-house software) (I): Such costs exist for all in-house software, but may not be broken out at an application level.

  • Help desk support costs (J): It's necessary to analyze all help desk calls at an application level to determine the contribution of an application (if any) to help desk activity. The support costs for some applications may be anomalous and may disappear with the movement into the cloud.

  • Operational support personnel costs (K): There is a whole set of day-to-day operational costs associated with running any application. Some are general costs that apply to every application, including staff support for everything from storage and archiving, to patch management and networks and security.

  • Infrastructure software costs (L): A whole set of infrastructure management software is in use in any installation, and it has an associated cost.

A simple formula states the annual data center cost of application ownership:

A + B + C + D + E + F + G + H + I + J + K + L

This cost is known as the Total Cost of Application Ownership (TCAO).

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