Determining The Cost Of The Cloud – How To Arrive There?

Determining The Cost Of The Cloud

Infrastructure as a Service (IaaS)

This service model enables user organizations to forgo deployment of new datacenter equipment to handle growing operational needs. Rather, the business obtains needed IT infrastructure – servers, security, storage, networks, etc. – from a cloud services provider, often via a self-service catalog. While a user company can run applications, databases, operating systems and other software on top of its selected infrastructure, it has no direct control over or access to those machines. The cloud service provider manages the infrastructure, including any Scaling up or down as needed.

Infrastructure as a Service is similar in concept to a traditional dedicated hosting service, with two major differences: Organizations tap into a shared, highly scalable pool of resources, and they pay for only what’s used on a utility basis. In other words, organizations can increase productivity while eliminating under utilization costs. IT shops must keep in mind, however, that multi-tenancy applies across the public cloud infrastructure. They have no way of controlling the types of virtual resources running atop the infrastructure they’ve provisioned from the cloud.

Determining The Cost Of The Cloud

Platform as a Service (PaaS)

Derived from the SaaS model, PaaS caters to developers’ needs. Rather than simply delivering prepackaged applications via the on a service model, a PaaS provider offers up the entire computing platform and solutions stack needed for an application runtime environment. With PaaS, a company can deploy applications without incurring the associated upfront provisioning and ongoing maintenance and management costs of the underlying infrastructure. The user organization has application control, the caveat in many cases being that the developers must be comfortable with the PaaS provider’s choices for programming languages, interfaces, development tools, database support and the like.

The types of PaaS offerings vary; which option works best for a business depends on its goals. For example, some cloud companies offer a PaaS and SaaS combo, providing organizations with the ability to customize the packaged application. Although being able to tweak the application may make the SaaS model more attractive, the catch is that when combined with a PaaS offering, SaaS becomes less portable. The richest PaaS offerings enable an organization to support the entire application development lifecycle.

Software as a Service (SaaS)

Often geared toward the end user who needs access through a web browser or other thin clients, SaaS provides access to applications hosted on a service provider’s cloud infrastructure. A business can find just about any general office application available via the SaaS model. Customer relationship management (CRM), calendaring, e-mail and human resources management are among some of the more common applications delivered as services from the cloud infrastructure.

For IT departments, IT service management, spam filtering, intrusion prevention and other traditional security software are among the application types increasingly available via the SaaS model. With SaaS, the user organization neither owns the application nor the associated servers, operating systems, storage, network or other IT resources required for its support and delivery. For example, users can define their own firewall policies or white-label applications in their names.

Some questions to ask internally before hopping on to the Cloud bandwagon:

  • Which parts of my business are suitable for moving to a cloud-based delivery model and which are not?

  • How much of each process should I consider placing on the cloud?

  • Should I retain control in-house but use cloud-based infrastructure, buy the entire process as a service, or something in between?

  • Which services are enterprise-ready and offer the right levels of security and governance for my business?

  • How does transitioning to a cloud impact my procurement and what else should I consider before signing on the dotted line?

  • How do I establish a winning strategy to fulfill short-term needs and provide long-term advantage by leveraging virtualization and cloud?

Cloud Pricing

Pricing models for cloud services are maturing, and range from free and ad-based models to pricing based on volume, transaction, or user, as shown in the figure below.

Pricing structures for the cloud are based on a various factors ranging from storage space needed to clock cycles used to monthly traffic allotments, and it does not end here. Sometimes there are additional charges hidden deep within service-level agreements (SLAs). To arrive at a total pricing for a cloud service, user organizations must take note of individual service elements that a provider bills for and how these are calculated. Does the provider, for Instance, bill based on within server traffic, storage space needed, server CPU time or a combination of these factors along with other elements?

Another critical factor in determining the total cost is the type of service required. For some users, the service may be a little more than a hosted, dedicated server to running applications in the cloud. For others, the service may be cloud-based backup or business continuity or basic hosted storage.

The easiest way to break down pricing is to focus on the primary services offered. Most cloud Service Providers break down their services into three primary areas: servers in the cloud, storage in the cloud, and sites and applications in the cloud. Each is governed by its own formula for pricing.

Costs

In order to determine a pricing model that provides business value to an organization using cloud services, it is necessary to know the direct and indirect costs of providing these services. For e.g., in the case of an IaaS deployment, the cost can be modeled as a fully loaded cost per server or per virtual machine. Costs can be initial or ongoing. Initial costs, also known as capital expenditures, or CapEx, include the costs to acquire assets such as hardware and facilities. These include:

  • Facility construction or acquisition

  • Power and cooling infrastructure

  • Server, network, and storage hardware

  • Software licenses, including operating system and application software

  • Racks, cables, and installation

Ongoing costs, also known as operational expenditures, or OpEx, include all costs for keeping the business or facility running. These include:

  • Payroll

  • Facilities maintenance

  • Hardware maintenance

  • Software maintenance

  • Other fees such as insurance, legal, and accounting fees

  • Backend cost, which includes manpower cost of support teams and the entire support infrastructure, which may comprise of partner eco-system.

Determining the cost of the cloud

Both capital and operational expenditures are taken into account to calculate the monthly costs for a cloud computing deployment.

For capital expense cost items, the cost of each item needs to be amortized over the life of the item. Typically servers have a lifespan of 3 to 5 years, while datacenter facilities have a life of 10 to 15 years.

The formula to calculate a monthly cost, using a simple straight-line depreciation model is:

Total Cost

Monthly cost = 1 – 1 N

1 + R

R

Where: R = is the monthly cost of money or inflation rate (for example, 3%/12)

N = life of the item in months

By combining the monthly costs for the operational expense items with the calculated monthly costs for the capital expense items, the total monthly costs of the cloud deployment can be determined.

By Gopan Joshi

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