10 Practical Steps To Minimize TCO in Cloud Computing
Introduction
The year 2025 forecasts a substantial transition to the cloud. According to Gartner, public cloud spending worldwide is expected to reach $723.4 billion in 2025, up from $595.7 billion in 2024.
As companies invest significantly in cloud computing, understanding the Total Cost of Ownership (TCO) becomes increasingly important. The cloud assists companies with financial management and strategic decision-making. Along with benefits like scalability and flexibility, the cloud introduces new complexities with costs that require companies to calculate cloud TCO.
Underestimating the importance of TCO in cloud computing can lead to budget overruns and strategic setbacks. Your well-intended cloud strategy can quickly become a financial burden with fluctuating usage costs, hidden fees, and unexpected hikes.
If you aren’t familiar with the concept of TCO cloud, don’t worry. This blog covers all the essentials of TCO in cloud computing, such as key components, benefits, best practices, and DevOps’ contribution to cloud TCO management.
What is TCO in Cloud Computing?
Total Cost of Ownership (TCO) in cloud computing is the complete financial impact of cloud adoption. It encapsulates the total cost over its entire lifecycle, including deployment, operations, and maintenance. TCO offers a holistic view of costs, including both direct and indirect costs.
9 Key Components of Cloud TCO
Learning the TCO in cloud computing is imperative to make informed data-driven decisions if you transition to the cloud. Here’s a breakdown of the most critical elements that can contribute to your overall cloud adoption costs.
1. Infrastructure Cost
This is the primary cost while calculating cloud TCO. It covers computing, storage, and network expenses. Most cloud providers today follow the pay-as-you-go model, which primarily focuses on costs that include:
- Compute Instances: Cost of containers or virtual machines running applications.
- Storage: Storage types, such as object, block, and file storage, can have different charges.
- Networking: Expenses for load balancers, data transfers, and virtual private networks (VPNs).
Cloud providers' offers vary between on-demand, reserved, and spot instances. Businesses must plan carefully and analyze workloads to ensure efficient resource usage and budget optimization.
2. Software Licensing
Software licensing can critically impact a cloud’s TCO. Primary costs include:
- Operating System Licenses: Charges for the OS running on cloud instances.
- Application Licenses: Expenses of various software deployed in the cloud.
- Database Licenses: Costs for database management systems.
Businesses looking to cut costs should purchase their licenses instead of directly opting for license-included options from cloud providers. Opting for cloud-native applications and open-source solutions can further decrease licensing costs. However, it may require cultivating new skills and tools.
3. Migration Expenses
One has to bear significant upfront costs when migrating to the cloud. These include:
- Planning and Assessment: Expenses that account for migration strategy and current infrastructure.
- Data Migration: Transferring data and large datasets can be significantly expensive.
- Application Refactoring: Modification costs for applications to function smoothly on the cloud.
- Parallel Environments: Charges for operating a parallel environment during transition.
These costs can differ with the migration strategy and complexity of the existing infrastructure.
4. Training & Skill Development
Transitioning to the cloud requires cultivating new skills for IT staff members. These costs include:
- Training Programs: Expenses for cloud certifications and formal training.
- Learning Time: The drop in productivity observed when transitioning to new systems and processes.
- Hiring Cloud Experts: Costs associated with hiring the required talents.
Inadequate training can benefit in the long run but demands an upfront investment.
5. Operational Costs
Everyday cloud management costs can have a significant impact on TCO.
- Cloud Management Platforms: Expenses to manage and monitor cloud resources with different tools.
- Automation & Orchestration: Costs of introducing automation to enhance efficiency.
- Support & Maintenance: Expenses for premium support from cloud providers, including ongoing support.
- Personnel Costs: Cloud operation manager’s salaries.
6. Security & Compliance
Security and compliance are the most essential aspects of the cloud and affect TCO.
- Security Tools: Expenses for observing cloud-specific security solutions.
- Compliance Audits: Charges for timely compliance audits and certifications.
- Data Protection: Encryption, backup, and disaster recovery solutions costs.
- Identity and Access Management: Implementing and managing access control costs.
Cloud providers may offer numerous security features. However, certain organizations need additional third-party security compliance.
7. Data Transfer & Storage
Expenses related to data are often overlooked.
- Data Ingress and Egress: Expenses incurred when data is transferred in and out of the cloud.
- Inter-region Data Transfer: Costs associated with data transfer across different regions.
- Storage Tiers: Expenses like hot storage for frequently accessed data and cold storage for archival purposes.
- Data Backup and Replication: Charges for data redundancy and availability.
8. Performance Optimization
Ensuring your cloud services offer expected performance also contributes to TCO.
- Performance Monitoring Tools: Subscription charges for performance monitoring tools.
- Optimization Services: Services or consultation fees hired to optimize cloud resource usage.
- Scalability Features: Expenses incurred while opting for features like load balancing or auto-scaling to manage variable workloads.
9. Additional Considerations
- Vendor Lock-in Costs: Mandatory costs one has to pay to be a part of a cloud ecosystem.
- Multi-Cloud Strategy: Costs related to managing workloads across multiple cloud providers.
- Edge Computing: Expenses with leveraging edge computing solutions compatible with cloud services.
- Sustainability Considerations: Costs when choosing environmentally friendly cloud providers.
Top 3 Benefits of Calculating TCO in Cloud Computing
Learning TCO in cloud computing offers evident benefits with cost management. Here are the top 3 advantages of calculating TCO.
1. Managing Cloud Costs
TCO in cloud computing is fundamental to cost management. It allows companies to:
- Know hidden expenses that can be missed otherwise.
- Discover inefficiencies and eliminate unnecessary spending.
- Apply different cost-saving strategies.
Optimizing cloud costs allows companies to exercise control better and derive maximum value from cloud investments.
2. Budget Prediction
Understanding TCO plays a significant role in budget forecasting. It helps organizations:
- Enhance visibility with expenses by including all cost factors.
- Learn future cloud costs by analyzing projected growth.
- Include cost fluctuations due to changing requirements or scaling.
3. Decision Making
TCO analysis significantly improves decisions related to cloud adoption and management. It enables businesses to:
- Perform a comparison between different cloud providers.
- Examine the financial liabilities by migrating specific workloads to the cloud.
- Forecast the long-term financial investments with cloud projects.
TCO in cloud computing empowers companies to make strategic cloud investments by offering a complete financial picture.
How DevOps can Assist with Cloud TCO Management?
Investing in key software development practices of DevOps like CI/CD and Everything as Code (EaC) can be highly beneficial for any organization. CI/CD facilitates continuous updates to the code while EaC, your infrastructure, is created in a repeatable and automated manner that adheres to security requirements.
They introduce consistency and a seamless process, saving time and costs. Implementing CI/CD and EaC demands alignment across the organization, but they offer faster deployments and predictable and scalable infrastructure.
The absence of these DevOps practices presents challenges like inefficiencies, technical debt, and security gaps. Manual processes hinder releases, making it difficult to grab new opportunities.
Companies that do not embrace DevOps face the continuous struggle of high operational costs and uncertainty in development timelines. These inefficiencies compromise an organization's competitive edge and limit its ability to innovate and grow.
Now that you know DevOps' contribution, let’s understand how it generates higher revenue.
How DevOps Generates More Revenue Opportunities?
CI/CD pipelines offer teams immediate feedback loops with frequent, predictable deployments, accelerating feature rollouts. Faster deployments introduce new functionality, subsequently creating more revenue opportunities.
For instance, a startup may begin with monthly deployments, but as it gains traction, it may have to switch to weekly, daily, or even on-demand deployments.
These quick rollouts, whether for internal applications or external products with subscribers, always generate more revenue.
How do CI/CD and EaC complement each other?
A team must establish infrastructure, permissions, access, APIs, and integrations for every product or application. If the pipelines aren’t developed using EaC, the configuration is not documented, making it cumbersome to scale or repeat services.
Leveraging EaC for writing pipelines allows teams to reproduce pipelines quickly, unlike configuring each application for different environments. In addition, organizations can also try new methods to optimize, automate, and enhance other parts of the CI/CD pipeline.
CI/CD Pipelines Without EaC
Teams configuring CI/CD pipelines without EaC makes issue resolution difficult in future instances. These pipelines are created manually with no traceability.
Subsequently, days, weeks, or months later, the team members who did the work will have no idea how the end state was achieved, making it exhausting for future teams to detect and resolve issues.
CI/CD Pipelines with EaC
CI/CD pipelines developed using EaC offer complete visibility into configurations, making it easy to track how the final state was achieved. Teams can quickly discover and fix issues if a test doesn’t work as expected. The absence of EaC makes debugging a lengthy process requiring manually retracing steps, resulting in inefficiencies.
Hence, CI/CD and EaC can significantly lower operational expenses and cloud TCO in the long run by improving scalability, security, and efficiency.
Top 10 Best Practices for Cloud TCO Management
With companies worldwide adopting cloud services, lowering cloud TCO is a top priority. However, this doesn’t mean compromising performance or business requirements.
Here are some proven practices you can follow to reduce your cloud TCO.
1. Track Resource Utilization
- Leverage data-backed insights into consumption patterns leveraging analytics tools.
- Terminate resources that are underutilized or unimportant.
- Learn the actual demand and implement auto-scaling to offer necessary resources.
2. Select an Appropriate Pricing Model
- Various cloud providers offer numerous pricing models. Choose the one that most resonates with your needs, such as on-demand, reserved instances, or spot instances.
- If you observe a steady workflow, select reserved instances for a longer duration and get significant discounts.
3. Reduce Storage Costs
- Migrate infrequently used data to cheaper storage tiers using data lifecycle policies.
- Save space with compressed and deduplicating data.
4. Embrace Serverless Architecture
- Switching to a serverless architecture will eliminate the effort, resources, and money spent on on-premise infrastructure and facilitate event-driven workloads.
- Low-traffic and sporadic apps significantly benefit from serverless architecture.
5. Minimize Data Transfer Expenses
- Reduce data movement between regions or availability zones using the same cloud provider.
- Leverage content delivery networks (CDNs) to store and deliver frequently accessed content to users.
6. Adequately Use Spot Instances
- Use spot instances for non-critical tasks, which are cheaper but can stop unexpectedly.
- Use on-demand or reserved instances as a backup to create a balanced, hybrid, and cost-effective setup.
7. Leverage Multi-Cloud Strategies
- Make the best of competitive pricing and avoid vendor lock-in following a multi-cloud approach.
- Manage operations across multiple clouds using cloud management tools.
8. Enforce Tagging & Governance
- Foster better budgeting by using tags to assign costs to projects or departments.
- Manage cloud spending efficiently by setting rules and controls.
9. Analyze & Streamline Architecture
- Replace self-managed systems with cloud-native options by regular reviews of your setup.
- Reduce administrative overhead using managed services for databases, containers, and other tools.
10. Perform Timely Cost Audits
- Conduct periodic audits to identify further cost optimization opportunities.
- Seek inputs from finance and IT teams when reviewing cloud spending.
Conclusion
As the cloud ecosystem continues to advance and evolve, so will the strategies for learning TCO in cloud computing. Understanding TCO in cloud computing offers several advantages, such as better budget planning and allocation, forecasting future cloud expenses, cost comparison amongst cloud providers, the financial viability of cloud investments, and more.
An important thing to remember with cloud is that it’s a journey that observes a continuous learning curve. However, the abovementioned best practices can help organizations stay ahead of the curve.
With our 14+ years of experience, we at Maruti Techlabs can help you understand your TCO with cloud services. Leveraging our cloud application development services and DevOps Services can cover all the variables associated with calculating cloud costs and optimizing your software development cycle. Get in touch with us today to garner a complete understanding of your cloud’s TCO.
FAQs
1. What does TCO give in cloud discovery?
Total Cost of Ownership (TCO) in Cloud Discovery provides a comprehensive view of the expenses associated with cloud adoption.
2. What is TCO in cloud computing?
TCO in cloud computing comprehensively evaluates all expenses linked to deploying, running, and managing cloud services throughout their lifecycle. It includes direct costs, such as subscription fees, and indirect costs, like training and ongoing maintenance.
3. What are the key components of cloud TCO?
Key parts of TCO include direct costs (subscription fees, data transfer, storage, and computing) and indirect costs (management, training, downtime, support, and integration). Knowing these costs helps businesses accurately assess and manage their cloud expenses.
4. How can organizations optimize their cloud TCO?
Businesses can reduce cloud TCO by adjusting resource sizes, using reserved instances for steady workloads, enabling auto-scaling, utilizing cost management tools, and regularly tracking and optimizing cloud usage.
5. How much lower is automation 360 cloud TCO vs monolithic platforms?
Automation 360 Cloud offers up to 50% lower TCO than monolithic platforms by reducing infrastructure costs, minimizing maintenance, enabling scalability, and improving efficiency through automation and cloud-native architecture.
