Tuesday, November 10, 2009

Framework to calculate TCO for Cloud Computing and Virtualization

To my fellow architects -

A lot has been said about how elastic computing or on-demand computing or cloud computing can be a great cost containment vehicle for companies. The key element there is the pay per use costing model of each of these concepts. If an enterprise is able to predict it's work load and it's usage models then these computing concepts make a lot of sense. The question not withstanding issues such as security, the need to control the deployment environment etc. is in regards to whether these elastic computing models truly deliver on the promise of cost savings and/ or cost avoidance.

Has there been a proven way of calculating the TCO for traditional investment in IT assets that could now be used to compare and contrast the advantages or to identify the hidden costs of these pay per use computing models? I am wondering if there have been any frameworks that exist for doing a cost benefit analysis for even concepts such as Virtualization and Grid Computing.  What are some of the elements that need to be plugged into this TCO model to truly get to an accurate figure? Do you include costs associated with "loss of control" and/or "lost business opportunity costs" due to the inability of the cloud provider to scale up an environment during your peak? Is there a truly scientific and proven mechanism, methodology or process that could be used to compute TCO for these newer computing models?

Thanks in advance for your help.
surekha -


  1. Surekha -

    Yes, there has :) But by definition, it can't be 100% truly and purely scientific, because we're not just talking about technical capabilities - we're also talking about organizational, business, and risk capabilities.

    So the answer is three-fold. Yes, elastic computing models deliver cost savings in the near to short term. And no, there's no such thing as free lunch - over a standard benefits case term of 3-7 years, the total cost of ownership (in cash flow terms) is likely to be higher with an elastic model. The last bit is perhaps the most interesting, and falls under the "Caveat Emptor" category. While the capabilities delivered by an elastic compute model are similar from organization to organization, the specific required levels of investment in each of those capabilities are different (if they are aligned properly with business objectives.) So it's possible to build a "one size fits all" CBA at the capability level, but not at the instance level for each organization.


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