What is Cloud Economics and Why is it Important?
Cloud economics is all about understanding cloud migration’s principles and cost-benefit analysis. It helps CIOs (chief information officer) and IT leaders weigh on the costs of security and compliance, management, and infrastructure to determine if migrating resources to the cloud is a good idea.
Ideally, cloud economics is an approach to determining whether cloud migration is the right step for your business. It is an economic analysis of establishing whether building your resources in the cloud comes with many benefits. Often, IT leaders face a huge challenge of integrating IT services with getting the most value for the business.
Any business needs to establish crucial elements such as return in investment (ROI) and total cost of ownership (TCO). When an organization realizes its cloud economics, it can optimize its investment as much as possible.
Why is Cloud Economics Important?
Cloud computing provides organizations with numerous benefits. These include additional security of resources, scalable infrastructure, agility, and more. However, these benefits come at a cost.
Cloud economics establishes the cost-benefit situation of an organization upon building resources on the cloud. You pay for storage, backup, networking, load balancing, security, and more with the cloud. In addition, you need the IT capability to architect the cloud properly. By analyzing these facets, IT leaders can know whether the organization stands to leverage the advantages of cloud computing.
Since cloud economics helps businesses determine if cloud computing is right for them, it’s essential to take before getting on with migration aspects.
Key Aspects of Cloud Economics
Cloud economics deals with financial-related aspects such as returns and costs. Some of the critical aspects of cloud economics include:
Total Cost of Ownership (TCO)
The total cost of ownership (TCO) is the cost incurred in cloud planning, migrating, architecting, and operating the cloud infrastructure. It helps you understand how much your business will incur following adopting a cloud model.
TCO defines all the direct and indirect costs involved. These include data centers, maintenance and support, development, business continuity and disaster recovery, network, and more. This analysis compares the cost of on-premise infrastructure with the cost of cloud computing, enabling a business to make the right impact.
Businesses also learn about opportunity costs through TCO. The main aim is to attain a lower TCO than when operating on-premise. A business can either pause migration efforts, pay the extra costs if it wants to achieve other goals, or migrate in phases.
CAPEX to OPEX Switch
Cloud computing doesn’t follow a similar approach to traditional computing. The difference in pricing model affects the organization’s approach to costs. With cloud computing, the organization switches from capital expenses (CAPEX) to Operating Expenses (OPEX).
Cloud costs are no longer fixed and less predictable. Cloud providers have a pay-as-you-go model where you don’t have to pay an upfront cost. OPEX implies that your organization will have variable cloud computing bills depending on your usage.
The lack of upfront costs can save your business upfront capital expenses. However, it can also become a substantial financial risk if you don’t manage resources appropriately.
Traditional IT systems aren’t as elastic as cloud computing. When anticipating demand, you have to buy and maintain excess computing capacity. Adding excess computing capacity increases business costs significantly, with some capacity ending up unutilized.
Cloud computing charges for what you use only. Platforms such as AWS and Azure have a pay-as-you-go model where you only pay for the services and resources you use. Elasticity ensures you have the right amount of resources and can scale up or down cost-efficiently.
On-demand pricing is a major factor to consider when considering cloud migration. With on-premise computing, you buy a fixed capacity that you own.
The fixed capacity charges, however, change when you migrate to the cloud and choose on-demand pricing. Costs become elastic and can quickly spiral out of control if you don’t regularly monitored or control them.
Cost fluctuations resulting from the pricing as you go model can cost you lots of money. Therefore, you need a cost management tool to help you detect any anomalies.
Understand Your Cloud Economics and Financial Implications With nOps
Moving to the cloud is highly beneficial. Scalable infrastructure, enhanced security, low latency are some of the benefits your company will achieve. All you need is to ensure cloud migration is ideal for your company and won’t lead to extraordinary costs.
nOps provides you with an intelligent platform to assess your workloads and determine whether cloud migration is suitable for your company. nOps uses machine learning and artificial intelligence to help you understand your cloud environment.
nOps works on the AWS and Azure well-architected framework to help cloud users build secure and reliable workloads while optimizing costs. Use nOps to understand your cloud billing, detect anomalies, rightsize instances, optimize resource utilization, and more.