cloud economics

What is Cloud Economics?

Cloud Economics deals with cost, returns and other financial aspects of cloud computing. It generally involves assessment and understanding of  

  • The total cost of ownership for cloud 
  • The cost benefits of moving over to cloud from on-premise 
  • The cost optimization strategies involved in cloud operation 
  • The CAPEX vs. OPEX 
  • Business solution ROI 

It doesn’t only deal with actual monetary aspects but also the opportunity costs involved. 

Key Areas to consider in Cloud Economics 

  • TCO on Cloud 

TCO is the total cost incurred by the company in cloud planning, migration, adoption, provisioning and operating of infrastructure. It helps in understanding the returns on your investment. TCO analysis can be complex as it requires calculation of several dynamic elements in the environment. It generally involves  

  • Calculating the cost involved in your existent IT infrastructure 
  • Calculating the total cost of cloud adoption (including project planning and management costs) 
  • Calculating the costs saved with certain infrastructure being reduced from on-premises 
  • Quantifying and calculating the benefits which are seemingly intangible on cloud. 

The final objective is to attain a lower TCO than on-premises infrastructure, personnel employed on those infrastructure and others. The intangible benefits like speed and agility needs to be counted in. 

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  • Switching from CAPEX to OPEX 

In the traditional IT environment, calculation and computing of costs are predictable. You just need to calculate the upfront cost in infrastructure and capacity. Compared to that, while you move to cloud having pay as you go model, you have to calculate the costs involved in getting resources for operation. You have variable computing bills of cloud and depends on the services you use and consume.  

If the resources are not managed properly, it may cause financial drain of the organization and higher billing costs, sometimes even higher when calculated yearly than traditional CAPEX on-premise costing. It is important to have cloud cost strategies optimization plans in place to keep cloud billing under check. 

Elasticity and on-demand pricing 

On-Premise IT environments have set rules for anticipating peaks. Organizations generally purchase and maintain infrastructural components for additional computing capacity during those peaks. There is a significant cost involved in so. Often times, a miscalculation or wrong estimation of demand peaks may cause you to spend more on infrastructure than you really require or even less sometimes.  

IT infrastructural components may lie idle for years and incur depreciation value causing loss for organization. The need for over provisioning is completely nullified in the cloud environment. Resources are dynamically allocated to projects and processed ensuring that optimal and the right amount of resources are available for business as per the demand. Elasticity is the major cloud economic advantage promoting companies to switchover to cloud. As you move from a model of purchasing fixed computing capacity amount or server space to on-demand pricing model, your costs go elastic. This means cloud costs doesn’t remain in control if not monitored regularly. 

The people cost of cloud 

Shifting to cloud may require realignment of certain teams, contractual addition of cloud service provider’s team and creating the CCOE and the project planning, management and execution team.  

The costs and the resources involved in hiring, employing and putting such teams in action needs to be calculated in the cloud economics. Also, the teams that go decommissioned saves costs and needs to be included in the calculation of the people cost of cloud. 


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