Migrating To the Cloud? Here’s Why You Need a TCO Analysis First

Deciding to migrate to the cloud is a huge step for any business. It can help improve efficiency, meet the growing demands on a company, and boost productivity. But before you start, there are a few things you might want to consider first, such as costs and the actual benefits of cloud migration. However, calculating these expenses is not always as simple as it seems. Using a TCO analysis can help you take into account the operational and indirect costs and benefits of migration. 

What is a TCO analysis, and what does it include?

TCO analysis stands for Total Cost of Ownership analysis. It is a tool used by businesses to understand the overall cost of a business action — in this case, migration to the cloud — as compared to the short-term purchase price. A TCO analysis takes into account various costs, including the capital, operational, and indirect expenses, to see how worth it that purchase is. Let’s break it down a little more.  

Capital expenses

These are the expenses that come before any initiation of cloud migration. This includes both the hardware and software required to complete the cloud migration. For example:

  • Hardware or software for the server
  • Installation and integration of the hardware with current systems
  • Workstation hardware and software
  • Warranties and licenses
  • Compliance costs
  • Migration costs
  • Costs related to risk (security vulnerability, upgrades, future licensing issues)

Indirect expenses 

These are unexpected expenses that could occur when you migrate to the cloud, such as effects felt by errors in the external cloud system. For example, indirect expenses can include:

  • Labor and repair time
  • Downtime
  • Time-to-market delays
  • Software updates
  • Delays on the side of the provider

Operational expenses

Cloud migration

These expenses are all about how much it will cost to keep your cloud system up and running in the long-term. It includes any software and hardware upkeep costs. For example, these costs include:

  • On-going licensing costs
  • Support costs
  • Contracts and hiring
  • Software update costs
  • Warranties and repairs
  • Network connections

How to do a cloud TCO analysis (with TCO analysis example)

Below we’ll outline some of the key stages in completing a cloud TCO analysis. Here you will start to understand the processes behind a TCO analysis and what to do to determine if cloud migration is worth it for your business. 

Stage 1: Audit your current IT infrastructure 

To compare the costs of cloud migration, you first need to understand more about your current IT systems and what they do. That’s why it’s time for an audit. 

Collect and compile all the data you have about your current IT assets. Remember to include:

  • Specifications
  • Processes
  • Performance data
  • Network connections
  • Systems and servers
  • Security
  • Data
  • Etc.

By jotting down what you have now, you will gain a deeper understanding of your current capabilities and limitations. 

Stage 2: Review & calculate your current costs

Now that you know your current systems and their capabilities, it’s time to crunch some numbers. At stage 2, we’ll look at the direct and indirect costs you are currently facing. For example, direct costs can include server costs, storage, IT staffing network connectivity, etc. which your business is directly responsible for. Often direct costs are predictable as they occur every month. 

On the other hand, indirect costs encompass how much downtime costs your business, worker productivity, customer satisfaction, and loyalty rates, etc. these costs are often more subjective, so you may find yourself speculating a little here. But, if in doubt, always err on the side of caution.

At this point, depending on your needs and company, it may be helpful to gather feedback from other teams, such as marketing, customer support, finance, others. This gives you a better understanding of the bigger picture of how your cloud migration will affect the entire company, and if any potential issues could arise in any particular department.Having a more comprehensive picture from various teams helps you develop a clearer plan for what is currently being spent across the board and what may be needed in future. 

Remember to include all costs here, even if they seem insignificant. For example, you may consist of employee overtime used to fix a broken server or even lost revenue of a dissatisfied customer. How much do these really cost your business? 

Stage 3: Contact a migration provider & get a quote

If you have the means and capabilities to migrate to the cloud in-house—great! In this case, your team will be able to estimate the following costs for you, and you can reach your decision from there. However, for many, this is not a reality. That’s why, at this point, it’s time to contact the cloud migration specialists

In taking into account the costs of cloud migration, it’s vital to consider the indirect and direct costs for infrastructure, migration, and maintenance. So, what do these entail?

Cloud infrastructure

Cloud

These costs will include the hosting of your application in the cloud. Depending on the provider you use, this will vary. You may also find there is a variable scale depending on the side of your business and your specific needs. Your cloud migration provider will be able to deliver you a rough estimate of the costs associated with hosting.

Cloud migration

Now, let’s look at migration. Here we include all the IT costs, staffing or outsourcing costs, and other fee data.  For example, this can include the cost of data handling (your cloud provider may charge a fee), an outsourcer who is building your app, third-party staffing requirements, the workload of transferring your system to the cloud, and more. In addition, it may also include costs to keep running your current systems in parallel to the new ones until a full switch-over is completed.

Cloud maintenance

Think, “you’ve migrated to the cloud, and the job’s over?” Think again. Ensuring your cloud migration runs smoothly in the long term involves a little maintenance. In this section, you should include the costs for maintaining your systems. This may include integration, testing, on-going labor costs, admin fees, etc. It’s vital to account for these in your initial TCO analysis, so they don’t surprise you later. 

Stage 4: Weigh up your options

Now that you have all the data you require, it’s time to put it all together and weigh up your TCO analysis. Using qualitative and quantitative methods, consider how effective it would be for your business to migrate to the cloud. Does it make sense functionally, financially, and more importantly, does it fit your business model? In doing so, you will establish whether or not it is the right move for your company.

Final pearls of wisdom

Migrating a business to the cloud is an effective solution for many companies, but not all. When considering the move, it’s vital that you take into account the individual requirements of your company, and not just follow a trend. Instead, forge a path that is suited to your needs, and don’t hesitate to get advice from the experts before making the first move. After all, knowledge is power, and knowing the actual cost of ownership in advance can help establish if a move to the cloud is worth it. That’s why, before starting out the cloud migration journey, it’s essential you do a TCO analysis and learn the costs first.

Share the article