Chairman of the Board of Directors
How to Evaluate the TCO of the Cloud

How to Evaluate the TCO of the Cloud

Cost is a major factor that is driving organizations to the cloud. From lower infrastructure costs to greater staff productivity, the cloud can help your business to save money in countless ways. However, you cannot begin to fully grasp the monetary benefits of the cloud until you assess what your total cost of ownership (TCO) will be after implementation.

In essence, TCO is a tool that you can use to visualize the cost of deploying, owning, and sustaining a new technology such as the cloud. By assessing these expenses, you will be better equipped to build a cloud environment that will maximize your return on investment.

In the following, we will explore seven considerations that you will need to make when evaluating the TCO of cloud services at your organization:


  1. TCO evaluations need to be organization-based

Every organization obtains different benefits from use of the cloud, and no two will have the exact same cloud TCO. For example, health care entities will have a vastly different TCO from public sector organizations due to the unique needs of both respective industries and the business processes that each one must follow. As such, your evaluation must take a look at your enterprise as a whole and factor in any industry-specific influences that will affect your TCO.


  1. You need to look at your existing infrastructure

You cannot begin to understand your cloud TCO until you gain a comprehensive view of your existing infrastructure and, more importantly, how much you currently spend on it. This will give you a good indication of what this environment will look like once it is in the cloud. More importantly, this will help you begin to estimate how much you will need to spend on cloud resources after migration.

The evaluation should look not only at how much you have paid to acquire your infrastructure, but also the costs related to its maintenance and general use. Outside of these “direct costs,” you should also estimate the “indirect costs” of running your infrastructure. Among other things, they include lost revenue due to system outages and dips in productivity.


computer server


  1. TCO tools can make evaluation easier

Using your current expenses as a baseline, you should determine how much your infrastructure will cost in the cloud. There are an array of online tools that you can use to make your evaluation go more smoothly.

Amazon Web Services (AWS) is one of the many cloud providers that has developed its own TCO calculator. This tool will allow you to get a look at the cloud expenses you can expect when deploying AWS services. The Basic calculator requires you to input information such as the type of storage and number of CPU cores you plan to use in the cloud. For a more accurate calculation, you should use the Advanced calculator. This tool takes a more detailed look at cloud storage and server costs.

After compiling all of this information, the AWS TCO calculator will provide you with a three-year glimpse at your cloud costs across different categories. For more specific figures, you can use the vendor’s monthly expense calculator.


  1. Don’t forget to assess the cost of migration

TCO doesn’t just refer to the cost of cloud services and infrastructure. In order to accurately determine how much the cloud will cost your organization, you will need to take migration into account. The expenses related to this move will depend on several main components, including how much you would like to move and how large your infrastructure is.

There are, however, numerous other factors that you will need to assess when determining how much it will cost your organization to move to the cloud. No step is more crucial to this process than the transfer of data, which will involve vendor fees and other expenses related to labor. You will also need to consider the costs of testing resources before moving them to the cloud. If you don’t have the expertise needed to handle these responsibilities in house, then you will need to pay for outside consulting services.


  1. Factor in post-migration expenses

Your cloud TCO will encompass far more than just the costs related to deploying your new cloud infrastructure. Post-migration expenses, many of which are recurring, will contribute far more to your TCO over time. Not only will you need to pay regular fees to your cloud vendor for the use of their infrastructure, but you will also be responsible for ongoing administration costs. You will need to consider additional expenses such as ongoing application testing, security oversight, and staff training.




  1. Determine the TCO of cloud applications

Even your applications will contribute to your cloud TCO. This is because some apps require large amounts of computing power and other cloud services to run properly, which will result in higher costs on your end. Moreover, not every app you migrate to the cloud will be inherently capable of working in this new environment. If you rely heavily on these apps, then you will need to spend more money to customize them specifically for the cloud.


  1. Remember that it isn’t always about the money

Although TCO revolves primarily around the money it will take to run your cloud services, you shouldn’t base your estimate on money alone. There are many “intangible” or “soft” benefits that are hard to quantify, but which can have a big impact on this number. Consider how the cloud will have an effect on the productivity of your staff and, as a result, your ability to reduce your time to market. These reasons, along with benefits such as better reactivity to market changes and less system downtime, are just some of the factors that you should consider when determining your cloud TCO.