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The Influence of Personnel Costs on TCO for Private vs. Public Clouds



In the seventh part of this hybrid cloud economics blog series, I discussed Cost Considerations of Proprietary versus OpenStack® Distributions for private clouds. In the 451 Research report, How to Create a Quick Comparative Multi-Cloud TCO Analysis Spanning Public, Private and Managed Cloud, manpower was identified as an important factor in TCO, but it also noted that manpower can be difficult to measure. In this eighth part of the series, I will talk about the effect that personnel costs have on TCO when comparing private clouds–either managed or self-managed–compared to TCO for public clouds.

 An understanding of the cloud stack is important to any discussion on personnel costs. All cloud services can be viewed as having three layers: application, platform, and infrastructure. The application layer involves actual business application software used by the enterprise. Platform is the software layer that provides support to the application layer, which allows applications to run efficiently on the physical infrastructure. It includes functions like load balancing and auto scaling, among many others. Infrastructure layer consists of the physical devices—servers, storage systems, and networking equipment—along with the datacenters where the devices are located. Personnel cost considerations for public cloud versus self-managed private cloud versus managed private cloud are quite different for these three layers, and impact overall TCO.

Personnel cost considerations for public cloud versus self-managed private cloud

Perhaps the most obvious differences between public and private clouds is that the public cloud’s physical infrastructure is managed by the provider, whereas private cloud infrastructure is managed by the enterprise. With a self-managed private cloud, you need to hire the necessary staff of datacenter administrators and technicians to build, operate, and maintain the physical infrastructure. By contrast, public cloud infrastructure management costs are included in the usage fees. This embedded infrastructure management cost for public cloud is part of the provided Infrastructure-as-a-Service (IaaS).

 The situation is similar with the platform layer. Public clouds and private clouds include Platform-as-a-Service (PaaS) functionality that allows software applications to run on the service. In the case of public cloud, it is an integral part of the service. In the case of a self-managed private cloud, the functionality is included in the cloud software, such as OpenStack. The main difference is that with private cloud you need to have individuals on staff with the requisite expertise and skills needed to support the platform functionality.

 At the application layer, it is the responsibility of the enterprise to provide the staff necessary to operate and maintain the applications, whether using public cloud, managed private cloud or a self-managed private cloud.

The role of size on personnel cost for private clouds

Personnel costs to operate a self-managed private cloud for a larger cloud infrastructure will be lower on a per-unit basis than if the private cloud infrastructure is smaller. This is because cloud automation software management tools scale both vertically within a datacenter as well as horizontally across geographies. Thus, the same size staff needed to manage a smaller infrastructure can also effectively manage a larger cloud. In short, a large cloud system has the opportunity to be more cost-efficient in terms of manpower costs than a small cloud system.

Personnel cost considerations for self-managed private clouds versus managed private clouds

This situation for self-managed private clouds versus managed private clouds is somewhat similar to the situation of private cloud versus public cloud. A managed private cloud includes all of the personnel costs in the fixed price paid to the managed private cloud provider. One potential difference for a managed private cloud is that the application layer management is often included in the service. Since the managed private cloud provider is likely to be managing private clouds other than yours, the personnel costs they need to recoup for management will often be reduced due to their ability to share cloud management staff across the multiple cloud infrastructures. Unless your in-house infrastructure is large, personnel costs associated with a managed private cloud can have the potential to be lower than those associated with a small self-managed cloud—even after factoring in the managed cloud provider’s personnel markups.

The role of geography in calculating personnel cost

The last consideration in evaluating personnel cost is the role geography plays. For public cloud, this is not an issue. However, for private cloud services, both self-managed and outsource managed, it can be a significant consideration. To the extent that personnel are located in higher cost geographies–like the USA, Western Europe, or parts of Asia–personnel costs will be higher than in lower cost geographies. However, because much of the cloud management and monitoring functions can be performed remotely, even if physical infrastructures are located in a higher cost geography, opportunities exist to source a portion of the personnel cost for management from lower cost locations. This can allow infrastructure to stay in a specific high cost location due to data sovereignty issues, still taking advantage of lower infrastructure management costs from lower cost regions.

 In the next part to this series, I will explore the impact cloud bursting has in relation to managing TCO. I will review how cloud bursting can help manage peak workloads, as well as explore what types of workloads are most amenable to cloud bursting. I will also show a simple example to illustrate how cloud bursting can save on TCO versus a pure private cloud approach.

Read the next blog in the Cloud Economics 101 series: Using Cloud-Bursting as a Means to Manage TCO

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