Business white paper
Approaches to determine and
compare hybrid cloud TCO
Business white paper
Page 2
Your right mix and the role of cost
Table of contents
2 Your right mix and the role of cost
3 Challenges to establishing a cost comparison
4 Two methods for comparing hybrid cloud TCO
4 The quick comparative analysis
7 The in-depth approach
9 Getting help with either approach
10 Practical ways to lower TCO and drive value for
the business
11 Consider flexible purchase models
12Conclusion
An organization’s hybrid infrastructure
strategy needs to define their right mix
of cutting-edge infrastructure, power
their right mix with the best internal and
external resources, and optimize their
right mix with leading management tools
to ensure success every step of the way.
To accelerate their businesses, enterprises are seeking to implement their right mix of hybrid
infrastructure—combining public cloud, private cloud, and traditional IT resources—thereby
speeding innovation and growth. Hewlett Packard Enterprise (HPE) believes an organization’s
hybrid infrastructure strategy needs to define their right mix of cutting-edge infrastructure,
power their right mix with the best internal and external resources, and optimize their right
mix with leading management tools to ensure success every step of the way.
The main advantage of implementing a hybrid infrastructure solution is the ability to provision
infrastructure and applications in minutes, which increases agility and scalability. When making
an application deployment decision between public, private, and managed cloud, there are many
factors such as performance, security, data sovereignty, speed, cost, and regulatory compliance, that
can influence the decision that customers will weigh—and it’s clear that there is no single answer.
Ultimately, each enterprise needs to make their own choices based on their unique requirements
for where applications will be deployed across traditional IT, public, private, and managed cloud.
Although the advantages and benefits of cloud are perceived to be understood by the
business, IT still needs to explain the complete rationale for different application deployment
decisions. There is pressure to leverage the cheapest available option that delivers optimal
value. Added to this is the reality that different applications will be deployed on different cloud
platforms depending on the scenario. While it’s more than just finding the lowest-cost option,
it is still important for organizations to be able to compare the relative cost of different hybrid
cloud options.
For instance, implementing a private cloud can offer the advantages public cloud services bring
to a business in terms of increasing agility and improved utilization of capital assets, while still
maintaining control over security, compliance, and privacy. However, calculating and comparing
costs of private cloud services with those of public cloud services is complicated. Deciding
what percentage an application—or groups of applications—costs in terms of power, floor
space, hardware resources, backup services, management, capital depreciation, staffing, and
other factors is a daunting exercise. To add to the complexity, recent data from 451 Research’s
Voice of the Enterprise Survey found that 33 percent of IT end-users weren’t confident that
their cloud costs were under control or understood. Even more surprising, the study found that
25 percent from the same sample of end-users weren’t doing any cost evaluation whatsoever.
The justification for hosting applications on a private cloud rather than a public or managed
cloud needs to be properly understood in order to make the right decisions.
This paper identifies different approaches for creating a cost comparison of public cloud,
managed cloud, and private cloud. Additionally, it will help the enterprise understand how
they can leverage HPE expertise and cloud portfolio to lower their TCO and increase value
for their business.
451 Research Voice of the Enterprise survey
100
33 percent of IT end-users surveyed were not confident
that their cloud costs were under control or understood
50
33%
25%
25 percent of IT end-users surveyed were not doing any cost
evaluation whatsoever
Source: 451 Research
Figure 1. 451 Research Voice of the Enterprise survey
Business white paper
Page 3
Challenges to establishing a cost comparison
Comparing total-cost-of-ownership (TCO) for traditional IT and private clouds, compared to
public cloud alternatives, is a bit like comparing apples and oranges. Plus, developing a cost
comparison may seem difficult for an IT department if they do not possess the economic
skillset required to assess all the variables surrounding this topic. The TCO may be known
across a set of servers, switches, and storage for a known set of dedicated applications, but the
actual cost per application is very hard to compute in order to compare cloud environments.
To obtain pricing with public cloud, costs can be calculated on a price per virtual machine
(VM)/hour basis, but those prices can change regularly. With managed cloud, the price is
calculated per VM/hour on a price per contract. With private cloud, there are many cost factors
to consider, which this paper will touch on. Table 1 contains a list of some of the cost factors to
be considered.
An enterprise that best understands the full value of each of its potential options is more likely
to make the right decision. Make the right choice, and costs can be optimized and controlled,
while giving end-users access to the resources they need to grow and develop the business.
Make the wrong choice, and costs can spiral out of control, with end-users unable to make
headway in a competitive world.
Table 1. Cost considerations for private cloud
Hardware
Software
Data center
Personnel
Business continuity
Servers
Virtualization
Facilities
Salaries
SLAs
Storage
Storage management
Space
Benefits
Disaster recovery
Network
Security
Power
Fully loaded cost
Redundancy
Maintenance and
warranty contracts
Firewall
Cooling and HVAC
Turnover
Audits
Maintenance
Bandwidth
Recruiting costs
Compliance
Management software
Installation
Non-IT personnel
Upgrade costs
Space management
Training
Industry-specific
regulatory
concerns
License management
Contract
management
IT maturity
Over/under capacity
Lifecycle management
Upfront spend
Procurement costs
Disposal costs
Technology lock-in
Backup costs
Procurement costs
Legal costs
Procurement costs
Automation
Utilization
Availability
Type of workload
*Representative list
VM/Admin
Business white paper
Page 4
Two methods for comparing hybrid cloud TCO
Let us look at two approaches an enterprise can employ to evaluate the costs of private cloud
services in a hybrid cloud environment—a quick comparative approach and an in-depth
approach. The quick comparative analysis provides a simple equation for estimating the TCO
for fast decision-making. The in-depth approach provides a deep comparative cost analysis,
based on a specific situation or workload—using significant TCO expertise and tools—to
produce results for informed decision-making.
The quick comparative analysis
Sometimes a quick approach can provide a good enough cost comparison to make an informed
economic choice, along with other key decision factors, when determining to use a private,
managed, or public cloud. It’s not always necessary to get to an exact figure when it comes to
comparing costs. When looking for the validation of a plan or insight to inform decision makers,
a quick approach based on a set of assumptions and the accompanying margin of error can
offer a decent estimate of cost. This may be just enough information to make the right choice
for the enterprise.
The quick comparative approach is used when:
•Resources and time are limited.
•A quick current-state comparative estimate is required.
•Insight is needed on some of the decision elements and a quick calculation of TCO is required.
Quick comparative approach
Analyzing private and public cost options
Private cloud or managed
private cloud
Figure 2. Quick comparative approach to analyze private and public cost options
Public cloud
Business white paper
Page 5
Other decision criteria beyond cost can sometimes play a more dominant role in making a
choice between public cloud and private cloud. In a finding from a custom study performed
by 451 Research for Hewlett Packard Enterprise, 90 percent of a sample of 900 enterprise IT
decision makers expected to pay a premium for private cloud, with the average premium being
20 percent over public cloud. Seventy percent cited security as the leading driver, with flexibility,
transparency, compliance, and control being key value-added benefits of a private cloud over a
public cloud. A cost comparison is still important, but interestingly, many enterprises are willing
to pay more for a private cloud—they just want to ensure they’re not paying too much more.
451 Research presents a new way to do a quick TCO comparison based on two metrics they
identified that represent the majority of cost factors—utilization and manpower efficiency.1
These metrics can be used to calculate cost per VM and are dependent on a number of key
factors, such as use of automation or the type of workload. Ultimately, these key metrics and
factors that drive them offer a simple basis for quickly estimating and comparing the relative
costs of private cloud against public and managed cloud alternatives.
To improve utilization and manpower efficiency, automating and simplifying the management
processes for regularly recurring tasks is essential. Investing in an orchestration platform that
provides out-of-the-box tools allows administrators to do other tasks. Installation, pre-defined
configuration, workload onboarding, self-service capabilities, and general tasks should be
automated as fully as possible to achieve the lowest possible TCO from a private cloud.
Companies that have mature IT practices already in place, with clear processes for consuming
cloud resources, are more likely to achieve better utilization and a lower TCO from their private
cloud. For enterprises with immature technology and processes, a relationship with a strong
partner can provide the needed consultancy, support, and management required to reach the
enterprise’s goals for manpower efficiency and utilization. Once designed and implemented, the
partner can help support and manage the cloud while the enterprise’s IT maturity grows over
time. Overall, the level of IT maturity an enterprise has will have a significant impact on private
cloud and managed cloud cost comparisons.
Along with the two key metrics mentioned previously—utilization and manpower
efficiency—the simple 451 Research formula is populated with data from the 451 Research’s
Cloud Price Index (CPI)2 against a set of assumptions, producing a cost per VM for private
cloud. This cost per VM gives enterprises a basis for comparing the cost of a private cloud
against public and managed alternatives.
The utilization metric is a measure of the percentage a private cloud is being used for business
results activity. In an ideal world, a private cloud would have 100 percent utilization. Unutilized
capacity is waste. Resources that are not being used all the time are sunk costs. The higher the
utilization rate, the lower the cost per VM. The lower the utilization rate, the higher the cost per VM.
The manpower component is expressed as VMs-per-administrator within the simple formula and
can be the most difficult to measure. While much of the private cloud administration work can be
automated and made self-service, some level of manual activity will always be required. The key
to lowering the manpower costs of a private cloud is to automate and simplify as much of the
management as possible without opening up the infrastructure to unnecessary risk—patches,
resilience, policies and configuration all have an impact on security, availability and performance.
1
ow to Create a Quick Comparative
H
Multi-Cloud TCO Analysis Spanning Public,
Private and Managed Cloud, 451 Research
2
Cloud Price Index, 451 Research
Business white paper
Page 6
The 451 Research paper presents specific examples of how utilization and manpower
efficiency can have a dramatic effect on a private cloud being either less or more expensive
than public cloud options available today.
In scenario 1 (table 2), tooling and automation are not optimized and IT maturity is fair. The
workloads are fairly heterogeneous, creating an admin ratio of 250:1 and a resource utilization of
30 percent, making a public cloud a less expensive solution. However, in scenario 2 (table 2), based
on the same series of assumptions, tooling and automation improves, capacity planning improves
and more homogenous workloads are being run. This creates an admin ratio of 500:1, increasing
resource utilization to 60 percent, which makes a private cloud a superior economic choice.
The cost examples in table 2 show how the notion of value can change as a result of these
key factors. Even with just a 10 percent discount, a self-managed private cloud is just three
U.S. cents more expensive than a public cloud—with the benefits of security, compliance, data
control, and performance. Often, paying this small premium is worth the additional benefits
gained for many enterprises. It also shows that there are times when the private cloud is less
expensive than public cloud alternatives.
To summarize, the cost analysis from 451 looks at just a few factors based on criteria such as
utilization of the resources and VMs-per-administrator in order to deliver a quick economic
comparison. Using the assumptions supplied, combined with the metrics unique to each
enterprise, each organization is now able to derive their own quick comparison using the
simple formula supplied here. The result then needs to be weighed against other enterprise
requirements that are equally important, or sometimes more so, than just cost.
Table 2. Impact of utilization and manpower efficiency on cost of private cloud
451 Research shows two examples comparing cloud cost
Scenario 1
Scenario 2
Analysis factor
Value or state
Value or state
Automation
Limited
High
IT maturity
Average
High
Architecture/Capacity
Fixed
Ongoing capacity planning
Availability/DR
Site replicated
On-demand
Workload type
Variable
Constant
Deployment options
Public cloud is competitive
Private cloud is competitive
Hardware vendor discounts
10%
50%
10%
50%
Private cloud ($/VM/Hr)
$0.45
$0.35
$0.20
$0.14
Public cloud ($/VM/Hr)
$0.17
$0.17
$0.17
$0.17
Managed private cloud ($/VM/Hr)
$0.27
$0.27
$0.27
$0.27
Source: 451 Whitepaper—“How to Create a Quick Comparative Multi-Cloud TCO Analysis Spanning Public, Private, and
Managed Cloud”
Business white paper
Page 7
The in-depth approach
Where a quick TCO might help form early opinions and validate general assumptions, a deeper
level analysis is needed at times to help organizations ultimately set strategy and make more
detailed workload placement decisions.
The in-depth approach is used when:
•Workload-specific insight is required.
•Variables such as risk, security, compliance, performance, speed and staffing need to be
factored into the cost analysis.
•A large transformation, large investment, or a need to redesign an application deployment
strategy arises.
An end-to-end view of these elements is required to achieve a sound economic decision
unique to the needs of the enterprise. Drivers such as high-performance computing, regulatory
compliance, security, unique workload placement requirements, or overall investment levels may
be the initial triggers of an in-depth analysis, but how does the enterprise determine how deep
or how complete a view is needed?
Consider the following unique customer scenario that is dependent on a number of different
variables. Say for instance, that a company is making a specific workload placement decision.
Like before, elements such as VM-per-administrator and utilization matter, but in this example,
there is a multi-year lease on a data center with five years remaining on the lease that needs to
be factored into the overall TCO estimate. Existing equipment, asset depreciation, real estate,
energy, and other costs will weigh heavily on the overall final decision. In another example, an
enterprise is trying to identify when a unique application or a set of applications should be
migrated from one environment to another—in this case migrating from a public cloud to a
private cloud. Establishing a business case that correlates elements such as staffing, risk, agility,
and time-to-market with the impact on cost and other key factors can help to form the ultimate
workload placement decision and shift the decision priority from cost to value and directly link
to the overall impact on the business.
When driving to this level of depth, the enterprise needs to take the necessary time to
understand which elements matter most based on their specific scenario and be prepared to
come up with a more detailed comparative view that covers some of the points noted in table 3.
The in-depth approach is based on many variables. Such analysis would include detailed quotes
from hardware and software vendors for upfront costs including hardware, software, installation,
setup and configuration. Cost estimates would also be required for ongoing operating expenses,
including annual software licensing, data center space, power, network bandwidth, maintenance,
support and management. A detailed analysis needs to make an assumption of the salary
and all associated manpower benefits and also include the required office space needed for
administration when applicable. In addition to current costs, future costs and contingent costs
must also be factored in for all of the same upfront components—hardware, software, power,
labor, and facilities.
Business white paper
Page 8
Table 3. Relation of cost factors to business concerns
Representative costs and related business value
Cost factors
Hardware
Software
Data center
Personnel
Business continuity
Servers
Virtualization
Facilities
Salaries
SLAs
Storage
Storage management
Space
Benefits
Disaster recovery
Network
Security
Power
Fully loaded cost
Redundancy
Maintenance and
warranty contracts
Firewall
Cooling and HVAC
Turnover
Audits
Maintenance
Bandwidth
Recruiting costs
Compliance
Management software
Installation
Non-IT personnel
Upgrade costs
Space management
Training
Industry-specific
regulatory
concerns
License management
Contract
management
IT maturity
Over/under capacity
Lifecycle management
Upfront spend
Procurement costs
Backup costs
Disposal costs
Procurement costs
Technology lock-in
Legal costs
VM/Admin
Procurement costs
Automation
Utilization
Availability
Type of workload
*Representative list
Other decision factors can include
Risk
Adaptability
Data sovereignty
Flexibility
Data location
Speed
Culture
Time-to-market
Application architecture
Ease of use
Integration
Developer productivity
Performance
Business white paper
Page 9
While this in-depth approach may take weeks to achieve, certain investment levels or unique
business scenarios will dictate the need to complete this level of analysis. Organizations need
to prepare themselves as this in-depth approach takes time, effort, tools, and resources to
complete. And like before, knowing the comparative and relative costs of private, public, and
managed cloud remains important in a multi-cloud world, but now these costs become more
complicated to obtain as the overall variables increase. However, there are many resources and
tools that can help.
Getting help with either approach
In summary, the in-depth comparative analysis of costs can work well for a unique scenario
and/or workload and requires TCO expertise and tools to make a proper evaluation. It is
appropriate when making large-scale financial decisions to support the implementation of major
cloud investments. The detail required and the analytical expertise needed requires significant
time and effort to complete.
The quick method of cost estimation, based on the 451 Research Cloud Price Index, is
appropriate when needing to make rapid decisions, clarify assumptions about the perceived
cost of public, private, and managed cloud, and help validate planning assumptions. The
required data and analysis can be gathered and computed quickly and with significantly less
effort than an in-depth analysis approach.
Business white paper
Page 10
Regardless of where each enterprise is on their cloud journey or which approach is appropriate,
know there are different ways to get started immediately by planning a right mix that best suits
the enterprise:
•Assess hybrid cloud TCO and develop a customized view unique to the enterprise
•Assess the applications and workloads for the appropriate cloud destination
•Plan a strategy for workload deployment to the cloud
•Refine the cloud strategy as the enterprise transforms to hybrid IT
Hewlett Packard Enterprise has consulting resources and a growing list of partners that can
help enterprises make economically sound cloud decisions. HPE can help determine which
approach is best, based on the specific situation and decision at hand. Once an approach is
selected, HPE has the depth and breadth of experience to do enterprise analysis for comparing
application deployments using either the quick or in-depth approach to help an enterprise
made solid, data-driven, economic decisions.
Practical ways to lower TCO and drive value for the business
Hewlett Packard Enterprise has a full suite of IT management tools that can fully automate the
services and provide the necessary self-service and service catalog capabilities, which increase
the ratio of VMs to administrator, as well as increase utilization of the resources. These
solutions include:
•HPE Data Center Automation suite offers a scalable solution, which accelerates
provisioning, patching and compliance in a consistent and efficient way across heterogeneous
environments to achieve a software-defined data center.
•HPE Helion CloudSystem is an open, fully integrated, hybrid cloud management solution
with native world-class IaaS and PaaS features. This end-to-end hybrid cloud solution is ideal
for running traditional and cloud-native workloads. It delivers automation and orchestration
across multiple private and public clouds as well as traditional IT infrastructure. Enterprises
can easily move traditional apps to the cloud and build cloud-native apps with rapid
infrastructure provisioning and management across multiple cloud providers. It also provides
integrated tools for developers.
Business white paper
Page 11
•HPE Helion OpenStack® provides an open, configurable, and secure cloud infrastructure
operating system to support the business stakeholder’s demands and provide a modern, agile
development experience for developers. It is an open source alternative to expensive and
vendor-locked solutions, allowing choice over the mix of technology or hardware providers.
•HPE Synergy infrastructure combines compute, storage, and network fabric into a single
physical intelligent infrastructure so that all resources needed to run any application are
instantly available. Enterprises can accelerate application and service delivery through a
single interface that precisely composes and recomposes logical infrastructures into any
combination at near-instant speeds.
•HPE Converged Infrastructure gives a lower cost-of-ownership and greater flexibility
to meet more business demands. It replaces the inefficiencies and inflexibility of
one-silo-at-a-time infrastructure with software-defined agility and automation. Enterprises
can deploy pre-validated, factory-tested hardware configurations in weeks instead of
months. New IT services can then be created in minutes, not hours, using integrated,
workload-optimized systems. This eliminates infrastructure silos for improved IT efficiency,
simplicity, and speed.
Consider flexible purchase models
Hewlett Packard Enterprise offers a range of services to help customers achieve the flexibility
expected with cloud solutions including:
•HPE Flexible Capacity that delivers a pay-as-you-go service, enabling instant scaling to
handle growth needs without the usual long procurement process. Enterprises gain the
agility, pay-per-use billing, and rapid scalability of the cloud model in the privacy of their own
data center. Surges in demand are easily handled, which enable the business to get to market
faster without wasting capital on unused capacity. The technology resides in the customer’s
data center, allowing them to maintain control of security, data privacy, compliance and
performance.
•HPE Financial Services provides a variety of IT consumption models to fit the financial goals
of the business. Financial services programs include pre-provisioning, flexible asset return and
accelerated migration.
Business white paper
Conclusion
When determining the right mix of applications and workloads, calculating a comparative TCO
in a multi-cloud environment needs to evolve. It takes economic insight, the ability to keep pace
with a rapidly changing landscape and resources to complete, but the enterprise doesn’t have
to go it alone. As they consider their approach, it’s important to know that it’s never just cost
alone. Security, compliance, staffing, performance, and many other variables all matter. Internal
pressures to reduce cost will challenge everyday business decisions. With a variety of different
starting points, the enterprise needs to take the time to determine what level of analysis is
needed to determine a comparative cost analysis that is sufficient. Once a path is selected,
recognizing which option is the lowest cost is certainly important to define, but ultimately it’s
the value to the enterprise at the lowest cost that matters.
Learn more at
hpe.com/helion
Sign up for updates
© Copyright 2016 Hewlett Packard Enterprise Development LP. The information contained herein is subject to change
without notice. The only warranties for Hewlett Packard Enterprise products and services are set forth in the express warranty
statements accompanying such products and services. Nothing herein should be construed as constituting an additional warranty.
Hewlett Packard Enterprise shall not be liable for technical or editorial errors or omissions contained herein.
The OpenStack Word Mark is either a registered trademark/service mark or trademark/service mark of the OpenStack Foundation, in
the United States and other countries and is used with the OpenStack Foundation’s permission. We are not affiliated with, endorsed or
sponsored by the OpenStack Foundation or the OpenStack community. Pivotal and Cloud Foundry are trademarks and/or registered
trademarks of Pivotal Software, Inc. in the United States and/or other countries. All other third-party trademark(s) is/are the property of
their respective owner(s).
4AA6-7328ENW, September 2016