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Approaches to Comparing Costs in a Hybrid Cloud World



In the second part of this cloud economics blog series, I discussed role of contingent costs on total cost of ownership (TCO) for your right mix of private, public and managed cloud services. In this third part, I will review two different approaches customers can take to create a cost comparison across multiple cloud options.

When looking at TCO between traditional IT and private clouds to public cloud alternatives, it’s hard to get an “apples-to-apples” comparison. The difficultly is further compounded if an IT department doesn’t possess the economic skillset required to assess all the variables for a proper TCO analysis. The TCO might be known across a set of servers, switches and storage for a specific set of dedicated applications, but the actual cost per application is very hard to compute in order to compare costs with cloud alternatives.

Public cloud pricing and costs can be calculated on a price per Virtual Machine (VM)/hour, but those prices also change regularly as public cloud vendors are in constant competition with each other. With managed cloud, the price is calculated per VM/hour on a price per contract. For private cloud, there are many cost factors to consider. The table below highlights the large number of cost variables that have to be considered for a proper TCO analysis:


Understanding the full value of each potential cloud option allows the right business decision to be made. The goal should be to optimize and control costs while simultaneously giving end-users access to the resources they need to develop and grow their part of the business. If costs are allowed to spiral out of control, it’s difficult for an enterprise to compete effectively.

When comparing options, there are basically two general methods for getting TCO for private cloud services, a quick approach and an in-depth approach.

A quick approach

A quick approach provides a “good enough” cost comparison when: resources and time are limited; management requires a quick current-state comparative estimate; or some cost insight is needed as part of other decision elements and a quick calculation of TCO is required. When looking for the validation of a plan or insight to inform decision makers, a quick approach based on a set of assumptions and accompanying margin of error can offer a decent estimate of cost. A quick TCO might help form early opinions and validate general assumptions. This may be just enough information for the enterprise to make the right choice.

Other decision criteria beyond cost can sometimes play a role in making a choice between public cloud and private cloud. In a recent paper from 451 Research, they present a simple approach companies can use to derive their own comparison. This paper looks a two core metrics to evaluate cost of a private cloud, system utilization manpower efficiency and then applied a cloud price index to those variables. System utilization looks at the percentage of use that the assets are actually getting work done. Manpower efficiency looks at how many virtual machines an administrator can handle. I will delve into this 451 Research simple approach in more detail in an upcoming blog in this series.

An in-depth approach

An in-depth approach provides a deeper level analysis, which is needed at times to help organizations ultimately set a larger strategy and make more detailed workload placement decisions. An in-depth approach is best used when: additional workload specific insight is required; variables such as risk, security, compliance, performance, and staffing need to be factored into the cost analysis; or a large transformation, large investment or a need to redesign an application deployment strategy arises.

A complete view of the individual cost elements, unique to the needs of each enterprise, is required to achieve a sound economic decision. Factors such as high performance computing needs, regulatory compliance, security, unique workload placement requirements, or just overall investment levels may be the initial triggers of an in-depth analysis.  Developing this level of cost detail requires the enterprise to take the time and resources required to understand, which the elements in the table above matter most based on their unique situation, and develop the detailed comparative costs of those elements. As with the quick approach, I will cover the in-depth cost approach in more detail in yet another blog in this series.

Whether using a quick approach or in-depth approach, creating a cost comparison in order to compare private cloud with public cloud options is extremely important. Understanding the different costing approaches, how to use them and when to use them will help put the business on track to make the right decision for a given scenario.

In the next blog in this series, I will discuss the metrics that matter when comparing private Cloud TCO.

Read the next blog in the Cloud Economics 101 series: Comparing private cloud TCO: The metrics that matter

About the Author


I am the Chief Operating Officer and Vice President of the Hewlett Packard Enterprise cloud business unit, driving all aspects of operations and performance. I am a leader in HPE’s Cloud Economics campaign. I have also held various leadership roles in General Electric and Electronic Data Systems, and have a Master’s degree in Business Administration, Analytical Finance and Strategic Marketing from the Indian School of Business, Hyderabad in India. I am also Six Sigma Black Belt certified. Follow me on Twitter @lalitsingh17

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