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How to Derive Your Own Quick Cost Comparison

LalitS

In the fourth part of this cloud economics blog series, I discussed the metrics that 451 Research identified as important information when calculating private cloud total cost of ownership (TCO), system utilization and manpower efficiency. In this fifth part, I’ll review how to derive your own quick cost comparison between a private cloud and a public cloud. 

As mentioned in the prior blog, 451 Research presents a simple formula for doing a quick TCO comparison based on two key metrics they identified, representing the majority of cost factors—utilization and manpower efficiency. These metrics can be used to calculate cost per VM per hour and are dependent on a number of key factors, such as use of automation or the type of workload. These key metrics, and the factors that drive them, offer a simple basis for quickly estimating and comparing the relative costs of private cloud against public and managed cloud alternatives.

In the 451 Research paper, How to Create a Quick Comparative Multi-Cloud TCO Analysis Spanning Public, Private and Managed Cloud, a series of assumptions and a formula are supplied to help customers determine their unique comparative TCO.

The formula presented is:

HybridCloudEcon5_blogimage_w770.png

 

In addition to providing this simple formula and the series of assumptions detailed in the paper, 451 Research populated the formula with data from its Cloud Price Index, which includes hardware, software and support prices from more than 25 vendors, cloud providers and colocation providers. This allows a quick basis of comparison between a private cloud and public/managed cloud alternatives.

Using this data, two examples were shown. The first is an end-user scenario where tooling and automation are not optimized, IT maturity is fair, and workloads are fairly heterogeneous. In this scenario, utilization is just 30% and the VM/admin ratio is 250:1. In this example, when a 50% discount is applied, private cloud comes out as more expensive–$0.35/VM-hour, compared to just $0.17/VM-hour–using the CPI average for public cloud from the same study. Managed private cloud is also cheaper at an average of $0.27/VM-hour.

 

In addition to providing this simple formula and the series of assumptions detailed in the paper, 451 Research populated the formula with data from its Cloud Price Index, which includes hardware, software and support prices from more than 25 vendors, cloud providers and colocation providers. This allows a quick basis of comparison between a private cloud and public/managed cloud alternatives.

Using this data, two examples were shown. The first is an end-user scenario where tooling and automation are not optimized, IT maturity is fair, and workloads are fairly heterogeneous. In this scenario, utilization is just 30% and the VM/admin ratio is 250:1. In this example, when a 50% discount is applied, private cloud comes out as more expensive–$0.35/VM-hour, compared to just $0.17/VM-hour–using the CPI average for public cloud from the same study. Managed private cloud is also cheaper at an average of $0.27/VM-hour.

Next, applying the same 50% discount and using the same assumptions, but this time the same end-user improved their tooling and automation and their capacity planning, running homogenous workloads and changing the picture substantially. Utilization improved to 50% and the VM/admin ratio increased to 500:1.

The numbers turn very quickly in favor of a private cloud solution with the cost dropping to just $0.14VM/hour, which is three cents cheaper than the CPI’s public cloud study. Even with just a 10% discount, the private cloud is just three cents more expensive than public cloud, but may provide the additional potential benefits of better enterprise security, compliance, data control, and performance. For many organizations, these additional benefits make this small difference in cost worth paying.

While doing a full, in-depth, and detailed cost analysis is sometimes necessary, this simple formula can be extremely useful in supporting an initial business case. It can also be used to help quickly drive and substantiate an immediate decision in cases where time is of the essence.

In the next part to this series, I’ll discuss issues related to developing an in-depth comparative cost analysis for those cases where more insight is needed.

Read the next blog in the Cloud Economics 101 series: In-depth comparative TCO analysis–when is it necessary?

About the Author

LalitS

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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