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The path to cloud ROI must be paved with clear expectations

The first step in charting your cloud ROI strategy is estimating storage consumption for the foreseeable future.

Making the case for cloud storage in your storage environment can be a daunting task, as organizations expect a...

lot from this cutting-edge technology. To prevent any surprises during an implementation project, storage administrators and CIOs need to set up clear expectations about the cloud investment.

Like many technology projects, the path to cloud ROI can be shaped by many variables. The first step in creating business justification for the use of cloud storage is estimating storage consumption for the foreseeable future.

Many organizations perform storage consumption planning as a part of their ongoing maintenance and budget planning, so there is a good chance these figures may be readily available. Be sure to estimate consumption on a per-storage tier basis, since the various classes of storage are most likely consumed at different rates.

Once the ongoing storage requirements have been determined, you need to estimate the projected cost of both local and cloud storage. Doing so allows you to treat the cost of local storage as a baseline against leased cloud storage costs.

Looking at the big picture

Storage consumption forecasting allows you to estimate future storage costs, but raw storage cost estimations alone are inadequate to determine whether local storage or cloud storage will best meet your needs.

In some cases, a comparison of raw storage costs can be extremely misleading. Suppose you determine your organization will consume 10 TB of storage in the next year. If you already have the storage available on your network, the cost of local storage might be zero compared to a significant cost for cloud storage. But you will eventually run out of local storage and need to purchase disks, arrays and so on. It is therefore important to look at long-term storage cost estimates rather than just near-term costs. For instance, you might consider performing a five-year projection to estimate costs over a longer period of time.

Questions to ask about storage consumption

It's a good idea to experiment with a number of different "what if" scenarios when creating business justifications for cloud storage. By doing so, you should be able to answer questions such as:

  • What will the financial impact be if my five-year storage consumption estimates are off by 20%?
    • If my long-term projections are off by 20%, does this cause the more cost-effective storage medium to change (does local storage suddenly become more cost-effective than cloud storage)?
    • How much storage traffic beyond my forecasted projections can our Internet connection absorb before performance degradation begins to occur?

You should also create a break-even analysis for your cloud storage. The reason is that cloud storage typically incurs a relatively low monthly cost, but has a high initial startup cost due to cloud storage gateway requirements.

When you ask management to make a large capital expenditure (one or more cloud storage gateways), they will typically want to know about ROI. Break-even analysis allows you to do this. One way to forecast ROI is to determine the average monthly cost of your on-premises storage (based on purchase cost, replacement of failed drives, maintenance and so on) and then compare it to the average monthly cost of cloud storage. Assuming cloud storage has a lower average monthly cost, you would then determine how long it would take for the monthly savings to offset your initial investment -- this is your break-even point. Anything beyond that point can be considered a return on investment.

Surprise costs can ruin the cloud storage experience

There has always been a considerable amount of controversy surrounding the various cloud storage pricing models. Some critics have even accused cloud storage providers of building hidden costs into their models.

On the surface, cloud storage pricing appears to be very straightforward. Providers almost always base their pricing on a cost per gigabyte (GB) per month. Given this model, an organization can estimate its monthly costs simply by multiplying the number of GB of data it plans to store by the price per GB.

But a couple of variables can come into play. Keep in mind that some (but not all) cloud storage providers use a sliding scale or set usage minimums when determining the cost per GB. There are a number of variations to this practice. For instance, a provider might charge 3 cents per GB per month, but impose a 500 GB minimum. This would mean an organization consuming 150 GB of storage would be billed as if it were storing 500 GB of data.

Pricing can also vary based on the type of storage used. Google, for example, differentiates between standard storage and Durable Reduced Availability Storage.

How to estimate raw storage costs

Here are the steps to estimate an organization's raw storage costs.

  • Estimate total cost of ownership for local storage over a period of time. Consider factors such as usage by storage tier, maintenance costs (maintenance contracts, disk replacement and so on), hardware acquisition costs, power and cooling costs, and support costs.
  • Use the local storage cost to establish a cost baseline.
  • Estimate your storage consumption forecast for the next few years. You will likely need to create separate estimates for each storage tier.
  • Using your storage consumption projections, estimate the cost of cloud storage over the next few years.
  • Compare projected cloud storage costs against local storage costs to determine which type of storage has the lower raw cost.

The biggest hidden cost that can come into play is the transaction cost. Transaction costs can take a variety of forms, but they are most commonly based on read/write operations. While the cost per GB of storage is often based on static data, some providers charge a transaction fee for each GB of data sent to or read from cloud storage. Other providers impose a transaction charge only if the data is sent to or read from a server that resides in a different region. For example, Google has network egress charges for data leaving the Americas or Asia-Pacific destinations.

In addition, cloud providers sometimes charge a fee for performing operations such as Get, Put or Post. These charges are commonly billed in blocks of 1,000 or 10,000 operations -- some providers may differentiate between operation types and have different rates for them.

Because there are often costs associated with cloud storage that go beyond the simple cost per GB of storage, it is important to ask a cloud storage vendor how they calculate your bill before you commit to a contract. It is also important to remember that the cloud provider might not be the only source of unanticipated charges. If your Internet service provider (ISP) charges based on bandwidth consumption, the adoption of cloud storage will inevitably lead to higher Internet costs.

Calculating bandwidth costs

As you calculate the total cost of adopting cloud storage, Internet bandwidth must factor into the equation. Some ISPs charge customers based on the amount of bandwidth they consume. Adopting cloud storage will inevitably lead to higher Internet bandwidth consumption, which may translate into higher monthly Internet service fees.

Saving everything adds up

Many times, organizations choose to use cloud storage as a form of archival storage. In these situations, storage retention policies will have a direct impact on ongoing costs.

Most cloud storage providers charge customers a per-GB/per-month fee, so the more data that is stored, the larger the monthly fee.

When archive data is kept indefinitely, cloud storage costs gradually, but consistently, increase as the size of the archive continues to grow.

Some organizations only use cloud storage as a form of archival storage. In these types of situations, it is easy to dismiss bandwidth concerns because archive storage by its very nature has a very low level of utilization. Even so, initially migrating archives from on-premises storage to cloud storage can be a bandwidth-intensive process. When it comes to creating a financial assessment of cloud storage, you can classify costs related to bandwidth consumption during the initial migration process as transition costs.

As you evaluate the impact cloud storage will have on Internet bandwidth consumption, remember that your Internet bandwidth must be shared among a variety of different network services. Unless you have sufficient bandwidth available to accommodate the use of cloud storage, your other Internet bandwidth-dependent services may see a decrease in performance. As such, it may become necessary to lease additional bandwidth from your ISP. Any additional required bandwidth must be factored into the monthly cloud storage costs.

About the author: Brien Posey is a Microsoft MVP with two decades of IT experience. Previously, Brien was CIO for a national chain of hospitals and healthcare facilities.

Next Steps

Steps to calculate your return investment in cloud storage

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This was last published in September 2014

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