877.4.SPY.NOW info@spyglass.net

Clarifying Cloud Costs: Why Total Cost of Ownership Isn’t the Only Metric

by | Jul 17, 2023 | T.E.M. Thought Leadership

Moving to the cloud has become more than a want, but a necessary business need. One that, if you don’t make the move, you’ll lose ground, competitiveness, and agility.

One of the top trends for 2023 is a continued transition to the cloud, with more companies working to harness its ability to allow for scaling with flexibility, allowing you to scale up when demand grows and fall back as demand weakens. With uncertainty in many sectors of the economy, this flexibility is invaluable.

What’s the cost of moving to the cloud?

Though the move to the cloud is publicized as the most important step for growth, it can seem frustrating for small to medium businesses due to the costs involved.

Managing technology expenses in a multi-cloud environment is also confusing. Integrating hybrid models can create numerous difficulties, including clunky integration and unnecessary billing complexity, leading to less agility and lowered functionality.

One route to help understand the value of cloud-enabled systems is to understand your cloud’s total cost of ownership (TCO). The potential value of cloud-computing TCO is that it incorporates your total cost for implementation and management of your cloud — including all technology and services you pay for in this transition and ongoing use.

Cloud TCO includes the total cost of:

  • Adopting and installing cloud computing tools
  • Operating cloud tools
  • Provisioning cloud infrastructure

Getting a grasp on TCO matters because it is very common to:

  • Have a lack of insight into what services you’re paying for
  • Overpay for current services
  • Have no idea how much cloud utilization is actually costing

But TCO shouldn’t be the common denominator to determine costs when applied to your highly dynamic cloud environment. While TCO is a high-level metric that provides an overall view of costs associated with running cloud services, it may not provide the level of granularity needed to identify areas where costs can be optimized.

Technology Expense Management (TEM): TCO’s beneficial complement

When using a cloud-enabled system, expenses for computing become less predictable and more reactive due to being generated by your company’s demand. The result? TCO is not reliable for comparing expected on-premise costs to ever-changing cloud-enabled systems.

If your company is considering moving to the cloud, it’s important to remember cloud costs don’t end with your monthly AWS, Azure, and Google Cloud Platform (GCP) bills. In fact, monthly invoices only represent a part of the cloud cost story. To rein in cloud expenses requires basic cost hygiene, including analyzing cloud bills and implementing a cost management solution, reports Gartner.

Because cloud infrastructure is dynamic in its overall ecosystem, estimating cloud TCO is not simplistic and is typically best done by an organization specializing in the process. A cloud TCO review through a personalized technology expense management (TEM) audit can help you determine the costs likely incurred. An audit also provides a way to better understand the cost of adoption, including lifetime cost and the value of static resources.

Fact: A recent surveyindicates that 30% of cloud spend is wasted

On top of considering all upfront costs associated with investing in cloud computing, you’ll need an analysis of ongoing costs and the need for support. To find costs impacting your bottom line, a TEM audit can weed out excess fees that up the cost of operating in the cloud.

To get the best cost insight, an audit reviews and identifies:

  • Budget accuracy and overages
  • Pricing and billing information with all cloud tools utilize
  • All idle resources you’re paying for and not using
  • Unutilized resources you’re paying for that could do more for your company
  • Cost anomalies to determine their source

Another often-made cloud budgeting mistake is comparing the cost of current on-premise systems with the cost of a subscription to cloud computing. Making informed decisions when selecting any technology solution is impossible without a comprehensive analysis. A clear picture of your cloud TCO solves that by creating a way to tally all costs to host, run, integrate, secure, and manage workloads over their lifetime while factoring in the intangibles.

How to Calculate Cloud TCO

According to Gartner, a cloud cost management tool is not the ultimate solution despite what some vendors tell you. A thorough cloud TCO TEM audit requires several steps and a significant amount of knowledge about your existing operations and the availability of cloud technology to provide the best guidance, including:

#1: Determining what you are currently paying for IT infrastructure

  • All hardware and infrastructure costs, including physical servers, supplies, and on-hand parts.
  • Software including licenses, cost of those licenses, and ongoing costs for renewal
  • Datacenter costs, including the cost to operate and secure it
  • Disaster recovery costs (installation, maintenance, and management costs)
  • All employees involved with the system
  • Routine maintenance, including the cost to operate, service, and maintain through your in-house team as well as specialists
  • Upgrade requirements and costs
  • Security for the system, including firewalls and security professionals
  • The cost of downtime

#2: Determining the cost of a well-designed cloud solution for your organization

One of the biggest mistakes companies make is assuming since on-premise infrastructure costs are reduced, their bill for the cloud is automatically cheaper. That’s not always the case.

A TEM audit’s goal is to determine what your on-demand cloud services will cost. Without intimate knowledge of this information, companies nearly always end up overpaying. Some examples of the costs associated with cloud solutions include:

  • Migration costs, including rehosting apps, refactoring apps, revising apps, and in some cases, rebuilding and rearchitecting, and replacing the app with commercial solutions.
  • Monthly cloud cost often depends on the type of services consumed and the cloud consumption model utilized.
  • Consultation and training costs.

#3: Considering the intangibles

Here’s where it takes some expertise to see both the cloud’s value and the true cost of switching. A cloud TCO powered by TEM provides insight into opportunities lost when not making the move.

For some companies, this includes the ability to move quickly to respond to fast-changing (and even ever-changing) market challenges. It also includes calculating the cost of maintaining infrastructure capable of meeting the highest demands when you have them but not costing too much when business slows.

Cloud Transition Knowledge for Clear Decisions

A cloud TCO with TEM will provide you with two things:

  • What you’ll pay to move (or not move) to the cloud if you have not done so yet.
  • Insight into what you are paying now that may be costing you more than it should, including identifying all IT services being consumed, who is consuming them, and whether they’re consuming them efficiently

In both cases, SpyGlass offers solutions. No matter what stage of the game you are in, cloud computing is a critical investment. However, there is no reason to overpay for this service. With an audit and more hands-on insight from our highly trained team, we can help you:

  • Determine what going to the cloud will cost in reality.
  • Evaluate where you’re overspending now that could keep more money in your pocket month after month.

Reach out to our team today to gain insight into a cloud TCO and how it can help to transform your company’s performance, scalability, and bottom-line success.