Businesses of all sizes are taking a strategic look at whether to run IT infrastructure on-premises or shift to a hosted model. The answer will depend on your situation and requirements. Some will keep key applications in-house and move the rest to the cloud. Others will decide IT is not a core competency and shift entirely to cloud services. A third option is to move IT infrastructure to the cloud while maintaining control over the application software.
Think of it this way: maintenance costs are like the gasoline, oil and occasional repair for your car. These are part of the cost equation, but in the long run, we also should consider the initial purchase, insurance and replacement at end-of-life. The value you derive from the car – mobility, personal expression, enjoyment – is yet another factor.
In other words, the decision for an on-premises or cloud-hosted application should take into consideration a long-run view of total cost of ownership (TCO) as well as value to the business.
Calculate TCO over a three- to five-year time horizon
Ballpark estimates of figures are acceptable. The important thing is to think through all of the factors:
- Hardware purchase and software licensing – If the application is already installed and running, estimate when it will be necessary to upgrade software and replace hardware.
- Data center floor space, power and cooling – Electricity bills add up for powerful, modern servers.
- Backups and disaster recovery – Backup copies, redundant systems, remote sites.
- IT salaries – Apportion some percentage of staff salaries to the application.
- Security – Firewalls, encryption, antivirus, spam filtering.
- Support and maintenance contracts.
Additional factors that bear on the decision, but may be more challenging to quantify, are:
- Cost of downtime – If downtime may cause significant loss of revenue or customer confidence, then more robust DR systems are needed. Can this be provided internally or should it be outsourced?
- Competitive differentiation – If an application brings a unique advantage to the business, then in-house management may be preferable. Standard applications are easier to outsource.
- IT opportunity cost – Freeing up IT staff to develop new, high-value applications may alone justify a shift to the cloud.
Compare the cost of on-premises vs. hosted
With your TCO estimate in hand, divide by the number of months and possible users to make an easy, side-by-side comparison with hosted services. Be sure to include on-boarding fees with monthly hosting premiums for a fair comparison.
Oftentimes one option will emerge as the clear winner. The cloud is growing in popularity because hosting providers can achieve economies of scale, service integration and high uptime that many IT departments are hard-pressed to duplicate at a reasonable cost.
Another great benefit of the cloud is the flexibility to take a hybrid approach. For many businesses, it’s not either/or. Some applications are better suited for on-premises and others in the cloud.
It’s about doing what’s right for your business from a cost and benefit perspective over the long haul.