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How to Avoid Cloud 'Sticker Shock'

Joe McKendrick
Insurance Experts' Forum, February 11, 2014

There's been a lot of debate back and forth lately about the true cost of cloud computing. While the up-front numbers of cloud are extremely enticing — often involving paying only a monthly subscription fee — the long-term costs often wash out any cost advantages.

Cost savings should not be the driving force behind cloud decisions — going to the cloud means greater flexibility, agility and access to resources not readily available to enterprises. However, many enterprises may encounter sticker shock when the eventual costs begin to add up. That's why methods to measure true cloud metrics should be put in place to avoid unpleasant surprises as the cloud engagement goes on.

In their recent book, “Cloud Computing: Concepts, Technology & Architecture,” co-authors Thomas Erl, Zaigham Mahmood and Ricardo Puttini provide some of the cost areas that should be considered measured from the beginning of a cloud computing engagement with an outside party.

Here are the eight hidden, and not-so-hidden costs that come with cloud:

  1. Cost of capital: These are the costs incurred raising the required funds for cloud projects. Erl, Mahmood and Puttini point out that this is likely to be lower for cloud than on-premises projects — “it will be generally more expensive to raise $150,000 than it will to raise this amount over a period of three years.” However, this formula differs from organization to organization.
  2. Sunk costs: These costs represent the amount of investment that has already gone into existing IT assets. “When comparing up-front costs together with significant sunk costs, it can be more difficult to justify the leasing of cloud-based IT resources as an alternative,” the authors note.
  3. Integration costs: Making cloud-based and on-premises IT resources compatible with one another could be a major hit to corporate pocketbooks. “There may be the need to further allocate funds to carry out integration testing and additional labor related to enable interoperability between cloud service consumers and cloud services,” Erl, Mahmood and Puttini write. “High integration costs can make the option of leasing cloud-based IT resources less appealing.”
  4. Locked-in costs: Ultimately, it may be necessary to change cloud providers, or even move an application back in-house. However, the enterprise may become dependent on a cloud provider's proprietary technology. These locked-in costs “can further decrease the long-term business value of leasing cloud-based IT resources,” the authors state.
  5. Network usage: This includes metrics for inbound/outbound network usage and intra-cloud network traffic.
  6. Server usage: This encompasses virtual server allocation and resource reservation.
  7. Cloud storage devices: This includes storage capacity allocation, including on-demand storage space and I/O data transfer rates.
  8. Cloud service: This is all that other nitty-gritty stuff that goes with signing a cloud contract, including subscription duration, number of nominated users, and number of transactions.
  9. Joe McKendrick is an author, consultant, blogger and frequent INN contributor specializing in information technology.

Readers are encouraged to respond to Joe using the “Add Your Comments” box below. He can also be reached at joe@mckendrickresearch.com.

This blog was exclusively written for Insurance Networking News. It may not be reposted or reused without permission from Insurance Networking News.

The opinions of bloggers on www.insurancenetworking.com do not necessarily reflect those of Insurance Networking News.

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