Calculating the True Cost of Moving to the Cloud

February 04, 2020

Finding the cost of any major change to a large and complex system is rarely as simple as adding up the prices of the goods and services required, and cloud migration is no exception.

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What is the true cost of moving your IT operations to the cloud?

Finding the actual cost of any major change to a large and complex system is rarely as simple as adding up the prices of the goods and services required, and cloud migration is no exception. In part 1 of this post, we'll take you through the steps required to determine the true cost of cloud migration, including capital and operating expenditures and will provide you with a convenient list of the available public cloud cost calculators.

First, Find Your Current Costs

In order to understand the cost of migrating to the cloud, you first need to get a clear picture of the ongoing costs involved in your current IT operations. At the most general level, you can divide such costs into two broad categories: direct and indirect costs. The distinction between these two categories is not always precise, but in many ways, it doesn't need to be, since their main function is to provide a framework which includes all relevant costs.

Note that while some of these costs can be calculated with reasonable precision based on invoices and other transaction records, other costs must be estimated. For smaller organizations, the estimation process may be fairly simple. At the enterprise level, it may be worthwhile to use a professional cost-estimation service or a parametric cost-estimation application with the capacity to estimate IT costs.

Current Direct IT Costs: Capital Expenditures

The largest single category of capital expenditures (CapEx) for an on-premise IT operation is typically the purchase of new equipment. For an existing in-house IT operation, some of the most clearly identifiable CapEx costs involve maintenance and support. These include replacement of hardware, expansion of infrastructure, and updates to both infrastructure and application software, along with the costs associated with system outages. As part of the process of determining support costs, you should maintain a detailed count of both hardware devices and installed instances of software by type, since many expenses are per device or system.

Current Direct IT Costs: Operating Expenditures

For the most part, direct costs which fall under the heading of operating expenditures (OpEx) are much easier to calculate than those involved in maintenance and support. These include:

  • IT support staff salaries, benefits, and associated costs.
  • IT facility costs, including floor-space, environmental control, and other IT-specific facility maintenance.
  • Power and data-connection costs for the IT facility.
  • Software licenses and support subscriptions.
  • Training for both the technical staff and the end users.

Current Indirect IT Costs

Indirect costs are typically not as simple to calculate as direct costs. You can, however, produce a reasonable picture of your IT operation's indirect costs by estimating its share of general operating expenditures, such as:

  • Administration above the level of the IT department itself (including HR and accounting for managing IT records and payroll).
  • Parking spaces and seats on company-provided transportation occupied by IT staff.
  • Office furniture, supplies, and materials used by IT staff.
  • Floor space, power consumption, and maintenance for any IT office space that is not part of the physical IT facility.

Projected Cost of Cloud Infrastructure

One of the advantages of calculating your current IT costs first is that you are likely to develop a reasonably accurate picture of your ongoing IT needs in the process. You can use that as a baseline for determining both your near-future and projected cloud infrastructure requirements.

Even with a current-use baseline, however, putting together a realistic projection of your cloud operations requires some understanding of the cloud environment. It is very likely that the move to the cloud will not be a simple transfer of your existing operation to a new platform to say the least. The fact that the cloud infrastructure and the resources that it provides are virtualized also means that the availability and pricing of those resources may not resemble those of their on-premise equivalents (if they even have equivalents).

At the most basic level, this means that you may find that it is practical and within your budget to significantly expand such things as throughput and storage capacity, or to add features which are not part of your current IT infrastructure; you may also find that existing elements of your IT infrastructure are no longer necessary, allowing you to reduce or eliminate some costs.

At the more advanced level you will want to take advantage of cloud-native features by, for example, converting key elements of your operation to container-based microservices, making use of orchestrators like Kubernetes, service meshes, and similar other open source technologies, while reducing your need for virtual machines.

Cloud Cost Calculators

If you already know whether you will be moving to virtual machines or containers in the cloud, you can use the calculation resources listed below to calculate your ongoing cloud infrastructure costs accordingly. If you are not sure of your migration path, these calculators will help you compare the costs of various alternatives.


Most of these calculators allow you to create fairly detailed scenarios based on the resources offered by the cloud service provider, along with examples reflecting common use cases. Others let you compare the cost of your current on-premise operation with the equivalent cloud operation on a resource-by-resource basis:

The basic/generic calculators may be more useful for a quick overview of your likely cost range. You can use the more detailed calculators as you develop a more complete picture of your migration plan.

Final Thoughts

In this two part series on the economics of cloud migration, we introduced you to the different areas that you need to think about when calculating costs of your move to the cloud. In part 2, we’ll take a deeper dive on the differences between OpEx and CapEx and why you need to consider post-migration costs as well.

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