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Understanding Cloud Computing Costs and Your Cost of Migration

Jacob Simkovich

Brand and Content Manager, Intel Granulate

The costs associated with cloud computing can differ significantly across various services and providers. Most organizations can effectively determine the expenses involved in establishing and maintaining their own IT infrastructure, but struggle to accurately predict the costs of transitioning to the cloud.

Cloud computing presents enhanced flexibility and often leads to increased efficiency. With cloud-based on-demand resources, organizations can rapidly scale up or down, while automation features contribute to higher efficiency levels. However, accurately estimating the expenses of dynamic and frequently short-lived cloud resources remains a challenge for many organizations.

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To accurately estimate, regulate, and optimize cloud computing expenses, organizations must comprehend the factors affecting costs, evaluate their requirements, formulate a strategic plan, and consistently monitor and optimize usage and billing. Cloud providers offer a variety of pricing models, as well as cost management and optimization tools, to assist organizations in controlling expenses. Additionally, third-party tools are available to help optimize cloud costs.

This is part of a series of articles about cloud cost management.

In this article:

What Factors Affect Cloud Service Pricing?

Cloud providers take several factors into account when determining pricing, including networking, storage, and maintenance costs: 

  • Hardware costs are associated with the physical infrastructure that supports the cloud environment. This includes servers, hard drives, networking equipment, and other necessary components. Cloud providers must consistently invest in hardware to keep up with technological advancements. The scale of a provider’s infrastructure can also influence costs, as larger providers may be able to achieve economies of scale, reducing the cost per unit of hardware.
  • Networking costs encompass data transfer and bandwidth usage, as well as the interconnectivity of various services and locations within the cloud infrastructure. Providers typically charge based on the volume of data transferred or the bandwidth consumed, with some offering tiered pricing structures for higher usage levels.
  • Storage costs are determined by the amount of data stored and the type of storage service selected. Different storage options, such as object, block, and file storage, come with varying performance levels, redundancy, and accessibility features, leading to different pricing models.
  • Maintenance costs include expenses related to hardware, software, and infrastructure upkeep, as well as security measures and system updates. Cloud providers must continuously invest in maintaining and upgrading their systems to ensure optimal performance, reliability, and security, which ultimately impacts the pricing offered to customers. In some cases, providers may also charge for support services, depending on the service level agreement.

Calculating Cloud Computing Costs vs. Traditional Infrastructure 

Calculating on-premises costs and cloud computing costs involves distinct considerations, as each model bears its own set of direct and indirect expenses. 

On-Premises Costs

For on-premises infrastructure, the costs encompass capital investments, operational costs, and other indirect expenses.

Capital investments include the initial outlay for purchasing hardware and software, such as servers, storage devices, and networking equipment. Additionally, costs may involve setting up and configuring the IT infrastructure, as well as any required facility modifications or construction. These upfront investments are typically depreciated over a period of time, and may require periodic replacement or upgrading.

Operational costs consist of ongoing expenses like electricity, cooling, and maintenance, as well as salaries for IT personnel responsible for managing and maintaining the infrastructure. Indirect costs include aspects like system downtime, which can lead to lost productivity and revenue, as well as potential data breaches or security issues that can have long-term financial implications.

Cloud Costs

In contrast, cloud computing costs involve both direct and indirect expenses. Direct costs comprise service fees, which may include compute, storage, and networking usage, as well as any additional features or support services. These costs are generally pay-as-you-go or subscription-based, making them more predictable and scalable.

Indirect cloud costs include factors such as personnel training, migration expenses, and potential changes to internal processes or workflows. Additionally, organizations need to consider the costs of integrating cloud services with existing systems, as well as ensuring compliance with industry regulations and standards. 

Cloud Optimization

5 Steps to Determine the Cost of Cloud Migration 

Determining the overall cost of cloud migration involves a thorough and systematic approach. The following steps provide a comprehensive outline of this process

1. Inventory the Existing Application Resources

The first step involves creating a detailed inventory of all software assets and hardware infrastructure associated with the application being migrated to the cloud. This inventory should include information on servers, storage devices, networking equipment, operating systems, databases, middleware, and application components. 

Assessing the dependencies and relationships between these assets is crucial, as it helps organizations identify potential challenges, risks, and areas for optimization during the migration process.

2. Calculate the Current Costs

The next step involves quantifying the current on-premises costs, taking into account capital investments, operational expenses, and other indirect costs. Capital investments include the cost of hardware and software, while operational costs encompass expenses like electricity, cooling, maintenance, and IT personnel salaries. 

Indirect costs, such as system downtime and potential security risks, should also be factored in. Accurately estimating these costs helps organizations gauge the potential savings and benefits of migrating to the cloud.

3. Calculate the Cost of Cloud Infrastructure 

This step involves estimating the costs associated with the cloud infrastructure needed to support the application. Costs may include compute, storage, and networking usage, as well as any additional services or features required. 

Organizations should compare different cloud providers and pricing models to identify the most cost-effective option that meets their needs. Factors such as data transfer, redundancy, and scalability should also be considered, as these can significantly impact cloud expenses.

4. Calculate the Cost of Migration 

The migration process itself can entail substantial costs, which organizations must account for when determining the overall cost of cloud migration. These costs may include hiring external consultants or service providers, internal resource allocation, personnel training, and potential system downtime during the migration. 

Additionally, organizations should consider the costs associated with integrating cloud services with their existing systems and ensuring compliance with industry regulations and standards. 

5. Identify Post-Migration Expenses

Finally, organizations should estimate the costs that will be incurred after the migration is complete. These may include ongoing cloud service fees, software licenses, support services, and any additional features required.

Post-migration costs can also involve expenses associated with managing, monitoring, and optimizing cloud usage, as well as potential security measures, data backup, and disaster recovery solutions. 

Organizations should also account for any indirect costs that may arise, such as changes to internal processes or workflows, and the need to maintain hybrid environments or retain certain on-premises infrastructure components.

Learn more in our detailed guides to cloud cost optimization, cloud server costs

Related content: Read our guide to cloud computing costs

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