4 steps to doing cloud ROI calculations right


Chris Churchey

January 6, 2017

I know of a company that had forecasted and budgeted for $2,000 a month cost with their cloud service provider when they moved to the cloud. Instead, about once every quarter, their bill edged over $5,000.

Why were they so far off on their budgeting?

Their cloud vendor’s pricing was fixed up to a maximum level of network bandwidth usage. Beyond that, the company had to pay incremental costs. When the company had built a profile of their performance and utilization requirements to use in attaining quotes from cloud vendors, they had only looked at the last 30 days of data. If they had looked further into the rearview window, however, they would have noticed the culprits that led to unexpectedly high fees—quarterly spikes in bandwidth utilization.

This story is just one example of how cloud ROI calculations can start off on the wrong foot. Sometimes, when leaders gauge their IT requirements, they fail to ask the right questions or dig deeply enough. On other occasions, they make assumptions rather than use data provided by their IT infrastructure monitoring solution.

With that in mind, here are some steps to a robust cloud ROI projection.

1. Let facts lead the way

To calculate your anticipated ROI, you need to assess cloud costs.

Surprisingly, a common pitfall in calculations is for IT managers to assume that they are using 100% of their current resources. They’ll say, “I have a hundred servers, four cores, this many gigahertz, and this much memory and storage. Let’s just take everything to the cloud.” As you might imagine, it’s costly to assume full utilization, and this leads to over-provisioning.

Instead, create a profile of your performance, capacity and availability requirements based on data from monitoring your IT infrastructure. Review a year’s history to capture all fluctuations in needs. Also, fully delineate your performance and security requirements.

2. Compare costs

Now it’s time to dig into the expenses. For the sake of comparison, assess your on-premise costs to run the group of applications that you want to relocate to the cloud. Make sure you include hardware, software, and facilities costs.

The next step is to evaluate the prices for different vendors. Because each vendor has a unique pricing model, you cannot quickly produce an apples-to-apples comparison. Pricing may be pay-as-you-go based on CPU or network utilization, fixed, per gigabyte, and more. There are also volume discounts based on CPU or network utilization. Finally, you’ll need to choose between multi-tenanted and dedicated resources.

Start by focusing on your needs, especially those related to performance and security. Performance is an area where many companies trip up when first migrating to the cloud. For instance, let’s say you need a terabyte of storage that can handle 1000 I/Os. When you receive your quote, it’s likely the vendor will not mention latency. If you need two-millisecond latency and they base their quote on five milliseconds, it could be a problem.

As you explore cloud options further, you may discover you have such strict performance requirements that you cannot enjoy the savings offered by a multi-tenanted environment. You need a dedicated environment, and that impacts costs significantly.

3. Use a total cost of ownership calculator

All leading cloud providers have easy-to-use total cost of ownership calculators that allow you to create a cost model from your profile. These cost models are inclusive, getting down to the amount of bandwidth you plan to use over their public network and the storage you require. Also, they’ll enable you to make a comparison between virtualizing your environment and going bare metal.

However, while you can plug your costs into these calculators and get ballpark estimates, don’t expect them to do all the legwork. You still need to pick up the phone and ask the vendor questions about performance, security, and other details.

4. Weigh the costs

Now you have both the costs of staying on-premises and moving to the cloud. Put them into a spreadsheet that weighs the costs of each scenario. From this, you can determine your return. Also, don’t forget to factor in intangible benefits such as access anywhere, anytime to your applications.

Calculating the costs and return from cloud migration is a complex project. It’s easier, however, when you use data from infrastructure performance monitoring to define your specifications and right-size your cloud environment. If you take a step-by-step, fact-based approach and ask the relevant questions, your cloud migration is far more likely to be successful and have a positive impact on the bottom line.


This article was written by Chris Churchey from CIO and was legally licensed through the NewsCred publisher network.

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