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The TCO of Keeping IT Infrastructure On-premise

There are two main considerations to make when assessing whether IT infrastructure should be purchased and installed in on-premise server rooms, or whether it should be set up “in the cloud” by partnering with a managed IT services provider.

  1. What is the Total Cost of Ownership (TCO) of each approach?
  2. How will each IT investment approach impact my organisation over the long term?

In other words, rather than simply looking at cost on its own, it’s also critical to consider which is the best investment approach for your organisation in terms of long-term efficiency and suitability.

The TCO of on-premise IT infrastructure

There are a number of significant costs associated with installing and operating IT infrastructure in-house:

  • Real estate costs – you have to allocate climate-controlled, secure space to accommodate servers, storage, network infrastructure, air-conditioning units, raised floor and cabling.
  • Infrastructure costs – this includes the upfront costs of purchasing servers, storage, network infrastructure, air-conditioning and cabling.
  • Hardware maintenance –maintenance coverage for the first three years i.e. the warranty, is typically pre-paid at the time of purchase. At the end of the warranty, maintenance has to be paid again and usually at a higher rate (as the hardware is now older).
  • Setup costs – costs of IT staff to establish the environment and set up networking – including for remote users.
  • Hardware and software currency – IT resources required to support servers, storage, networks, and to perform updates, patches and fixes.
  • Security & DR – IT resources are responsible for data breaches and server failures, and IT bears the direct costs of backups and redundancy.

The TCO of managed IT services in a hosted private cloud

Let’s contrast the costs above with their hosted (managed service) alternative.

With cloud-based managed IT services, costs associated with real estate, infrastructure, hardware maintenance, hardware and software currency, security and DR are all replaced with a single monthly charge that matches with your ongoing resource consumption.

Additionally, a hosted private cloud provider offers economies of scale that no on-premise alternative can come close to matching. These economies of scale include:

  • Large data centres with space allocated to many private cloud tenants
  • Security capabilities and costs amortised over many tenants
  • Wide use of virtualisation – especially on servers – ensuring optimal resource utilisation
  • Much greater buying power, leading to lower costs
  • Many processes are automated and standardised, leading to greater efficiencies

Most importantly, with managed IT services, internal teams aren’t tied down to managing the on-premise environment, which means they can focus their attention on innovation and technologies to help grow the organisation.

So, rather than facing lumpy and unpredictable capital expenditures, an organisation only pays for the IT services it needs when it needs them, and can scale up and down as needed. Effectively, the volatile CapEx cost model is replaced by a predictable OpEx-based subscription fee.

Shifting IT investment from CapEx to OpEx

IT infrastructure needs are becoming less and less predictable. CapEx-based on-premise IT infrastructure that is fit for purpose today could well be archaic just a couple of years down the line.

Additionally, the purchase cost of installing on-premise IT infrastructure is just the beginning. In addition to the IT resources needed to operate, support and maintain the environment, end-of-warranty and the end-of-life events require more cash investments. Maintenance payments begin where there weren’t any before, replacement for end-of-life assets become necessary, and migration costs are incurred to move from the old to the new.

Conversely, the operating expenses (OpEx) associated with cloud-based managed IT services are used purely for day-to-day running costs – and while subscription costs can go up if resource usage increases, they can also go down when workloads reduce. The CapEx alternative to increased resource usage is making potentially significant cash investments into an environment that could soon be outdated, and for what may simply be a temporary increase in usage.

Weighing up managed cloud services vs. on-premise IT infrastructure

By viewing the purchasing and running of your IT infrastructure from the perspective of Capital Expenditure vs. Operational Expenditure, it strengthens the argument for the private cloud option over owning the infrastructure and keeping it on premise.

Technology developments are occurring faster than companies can digest them, which is why forward-thinking CFOs are shifting from a reliance on capital expenditure to operational spending.

Perhaps the most important outcome of this shift is the freeing up of internal IT resources to develop key technologies and applications that can help grow the organisation. With time to focus on business-critical innovation, the possibilities for growth are virtually endless.

Somerville  is  a market-leading private and multi-cloud solutions provider in Australia, Somerville’s service offerings are underpinned by HPE’s technologies and backed by a team of experts qualified with over 50 technical certifications.

With a data centre footprint in Sydney, Melbourne, Brisbane, Perth and New Zealand, Somerville provides private cloud infrastructure with enterprise-class uptime, reliability and security. Customers get an Infrastructure-as-a-Service (IaaS) platform, with the cost benefits of shared resources and access to expertise, all with SLAs around redundancy and uptime.

Regardless of where you are on your cloud journey, Somerville is here to help find the right solution to fit your organisation’s needs. Start your private cloud conversation today.

In other words, rather than simply looking at cost on its own, it’s also critical to consider which is the best investment approach for your organisation in terms of long-term efficiency and suitability.

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