TCO Must Be The Business Case For Cloud Migration

Cloud Migration

According to recent predictions by Gartner the worldwide market for cloud computing will grow 18.5 per cent this year, to $131 billion. Cloud providers are undermining enterprise IT departments on cost and delivery time for services; yet what platforms, if any, should be put “in the cloud”?

Many organisations have learned that if IT is treated as just an overhead cost to be minimised, that is all it will ever be. Others are realising that, in most sectors, IT can provide the differentiation and competitive advantage the business needs.

Enterprises need to decide which of their IT platforms are ripe to be pushed out to a commodity provider, and which should receive real investment in order to drive the business forward. However, unless a decision is based on the Total Cost of Ownership (TCO) of the service, it’s complete guesswork as to whether any benefits will actually be achieved.

To Invest Or Not To Invest?

For businesses already operating their own data centre, it may initially seem that, pound-for-pound, the cost of cloud-based IT services is far lower than in-house. However, this does not always take into account the costs associated with under-utilising a data centre. Even if a service is moved to the cloud running a data centre, fully utilised or not, still costs money.

One way to understand this is to consider the real cost of a cloud service as the predicted cost of renting this IT from a cloud provider, combined with the cost of now under-utilised data centre capacity. When these are added together, the resulting cost may be much larger than first thought.

The utilisation of on-site resources needs to have a bearing on any cloud decision: for example, an organisation may decide to use its on-site resources to set up a private cloud infrastructure. Alternatively, any “freed” infrastructure can be used to support new or expanded services in-house. Finally, organisations may wish to go the whole hog: pulling all services from a data centre and then selling it off.

Costly Decisions

The fact is, unless IT departments can show the exact costs and benefits of providing a service in-house vs. through a provider, they won’t be able to make an informed choice. Often, business will find that cloud providers can give clear pricing structures, which aren’t matched by in-house IT, making cloud the easiest option to understand regardless of which is actually best for the business. The wrong choice can then result in sub-standard performance and even the need to switch back again in the future.

For example, prior to its bankruptcy in 2009 General Motors outsourced 90% of its IT management. One of the priorities for the new management team has been to get IT management and services back in-house, turning IT into more than just a utility sourced out to the lowest cost provider. There are definitely times when the public cloud or even a hybrid model will be the best option for IT services: however, businesses must make sure they can usefully and honestly compare their options to make a fully-informed decision.

Before choosing how to provision an IT service, an organisation needs to understand the basic parameters involved. Some IT services, such as email or CRM, are well-suited to being run by a cloud provider. However, the differentiating business value is, by definition, run by the business itself: which means it must be aware of all possible concerns.

One of the biggest concerns, yet often one of the least-understood, is cost. There are a host of others, including physical location and jurisdiction of the data used in the service; legal and regulatory compliance; level of availability required by the service; business impact of service disruption; and the availability of skills to deploy and manage the service. However, all of these parameters will ultimately affect the single most important consideration: the TCO of the service as a whole. This is what businesses must compare in order to decide if a move to the cloud is worthwhile.

The Bottom Line

As we have seen, cost, utilisation and the impact on the wider business are important considerations for any organisation looking to move to the cloud model. With these in mind, businesses can find the right balance between when to keep IT in-house, where to use colocation, and where to use public cloud services. At the end of the day, the cloud is just another means of provisioning IT, whether your organisation uses data centres for an internal cloud or outsources to a public cloud service provider. TCO needs to be the driving force behind any IT decision to ensure that, regardless of the strategy used, IT is delivered in the best manner possible.

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Liam Newcombe

Liam Newcombe is co-founder of Romonet and is recognised as a thought leader in data centres. Liam readily challenges convention to stimulate debate and collaboration to drive innovation. Liam has been the leading industry contributor to the European Commission’s European Code of Conduct for Data Centers (launched 19th Nov 2008), and used to chair the Best Practice Working Group. In 2011 Liam won the prestigious DatacenterDynamics 'Outstanding Contribution to the Industry' Award for his tireless work on the Code of Conduct for Data Centers.