Cloud Computing – CA 1
Title: Cloud Computing Continuous Assignment 1
Date: 17 June 2011
Team: 8
S/N
1
2
3
4
5
6
Student ID
A00079953
A0079995Y
A0026726E
A0068737N
A0079960N
A0079969X
Student Name
Lee Zhong De Rollei
Guo Yu
Low Chen Wei
Prashan Wanigasekara
Shaik Shamsheer Ahmed
Gaurav Pahwa
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Cloud Computing – CA 1
Contents
1. Motivation................................................................................................................................................. 3
2. Report Summary ....................................................................................................................................... 3
3. Organization Background .......................................................................................................................... 4
4. Two Improvements made to the model ................................................................................................... 5
5. Enhanced TCO Model................................................................................................................................ 6
6. TCO Justifications & Assumptions ............................................................................................................. 8
7. Cost Comparison Between On-Premise and Cloud Solution .................................................................. 14
8. Recommendation .................................................................................................................................... 16
9. Appendix ................................................................................................................................................. 17
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Cloud Computing – CA 1
1. Motivation
The cost of owning, operating, and maintaining high availability applications could be
substantial. It also requires dedicated attention from the management. This represents lost
opportunity for enterprises to focus on and innovate in their core businesses. As such, many
organizations are exploring cloud solutions
TCO provides a realistic and holistic measure of the long-term costs required to acquire and
operate technology solutions. Companies could use it to compare technological investment
between 2 solutions providing familiar or equivalents benefits over the solution lifecycle, but
have different costing required for acquiring, maintaining and operating these solutions
2. Report Summary
This report seeks to conduct a Total Cost of Ownership (TCO) evaluation of moving an
organization current on-premise messaging platform to google email cloud platform. The TCO
Model used in this report references Hurwitx1 TCO Model with additional 2 components added
for ensuring accuracy
1
www.accessiontechnology.com/resources/documents/accounting-software/netsuite/white-paper-TCO-of-cloudcomputing.pdg
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3. Organization Background
PQ Engineering is a local SME with 1 office in Singapore and has 120-150 employees. PQ
Engineering is local distributor for several brands of electricity meter, for example Schneider
Electric and RFL. The organization’s co-business is doing sale & support for electricity meter.
Due to the growing of energy industry and increase of the market demand, PQ Engineering is
expecting to grow the team site 10% per year within the next 3 years.
PQ Engineering relies on the company email for daily business operations. For example, sales,
customers support, administrative operations and etc.
Currently, PQ Engineering owns a Microsoft Exchange 2007 email system which is hosted in
local datacenter, M1 Internet Data Centre. The datacenter only provide physical space for the
servers, network connection and uninterrupted power supply to the servers.
The email system consists of 4 servers supported by 5 IT executives.
S/N Software/ Hardware
1
2
3
4
Quantities
Remarks
Users could access their mailbox using outlook client/internet browser via internet/intranet.
Each user is given 500mb storage space in the server. Currently there are close to 2TB users
email stored in the email server.
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Cloud Computing – CA 1
4. Two Improvements made to the model
1. Cost for Risk Management
Organizations are making huge investment in their IT assets. In order to protect their
investment, proper risk management must be exercised. Risk management comes with nontrivial cost, and this cost should not be excluded from TCO. As such, the cost of risk
management should be outline as one of the components in TCO Model.
2. Downtime Cost
There are two types of downtime that we study, scheduled downtime and unscheduled
downtime.
Downtime is inevitable, it can be caused by a bug in the system, or a mistake from operator.
Organization can minimize the number of system failure, however it cannot be avoided.
This applies to both on-premise and cloud solution.
The Enterprise Management Associates (EMA) research shows that average enterprise IT
service uptime is 99.5%. For cloud computing, Amazaon EC2 offers 99.95%. And Google
guarantees 99.9% uptime for its Premier services.
When system failure happens, the employee productivity will be affected. The IT
department will be busy solving the problem and identify the cause. And the organization
will also encounter the problem of losing business opportunity when the system fails to
serve business operations. In order to have accurate TCO to evaluate the product
implementation, all these should be measured and quantified in the TCO as the downtime
cost to the organization.
For both case, we do not do the estimation cost for impact on the business. We focus on
the operation and administrator cost to resolve the problem.
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Cloud Computing – CA 1
5. Enhanced TCO Model
S/N
Cost Components
1.
a.
Evaluation & Selection
Solution evaluation & analysis
Evaluate features & functionality solutions
0
Vendor review & SLA analysis (as applicable)
review & audit vendor license agreements, service levels &
2600
security compliance
IT Infrastructure Hardware, Software & Support
Server & storage hardware & maintenance
capital expenses required to acquire services & storage to run
applications, databases & test environment
operating expenses for maintenance, space, power & cooling
Operating system, database, security, backup software & maintenance
capital expenses required to acquire operating system,
database, security, & data backup software
operating expenses for software support, upgrades, patches &
bug-fixes for this infrastructure
Administrative IT costs for systems & database
percentage of full-time equivalent (FTE) IT administrators salary
9870
for hardware systems, software & databases
Application Subscription Costs OR Application License Costs
ERP & CRM application subscription or license cost
costs are calculated on an equivalent number of users
for on-premise solutions, these are initial deployment capital
expenses. all application costs are calculated based on vendor
list prices
Application maintenance
for on-premise solutions, this includes operation expense for
bug-fixes & upgrades to new versions of software
for cloud solutions, these are included in the subscription costs
Application Solution Deployment Costs
Detailed design
b.
2
a.
b
c
3
a
b
4
a
Year1
(2011)
2600
Existing On Premise Solution
Year2
Year3
Total
(2012)
(2013)
2600
2600
7800
6
Year1
(2011)
12600
Cloud Solution
Year2
Year3
(2012)
(2013)
3900
3900
Total
20400
0
0
0
8700
0
0
8700
2600
2600
7800
3900
3900
3900
11700
9870
9870
29610
1212
1212
1212
3636
Cloud Computing – CA 1
b
5
a
b
6
a
b
7
a
b
C
define project objectives & scope; existing processes; identify
process gaps & data sources; document business requirements;
develop final project plan
Configuration & deployment
application configuration to specifications; integration between
front & back office functions; custom integration if required;
data migration; system testing; cutover to new solution
Initial & Ongoing Training Costs
User training
to increase & accelerate adoption by users, including new users
over time
Administrative training
to transition daily system administration to the customer's
internal staff
Downtime cost
Scheduled downtime
the downtime for system maintenance or software patching
Unscheduled downtime
the downtime that is caused system failure
1125
1125
1125
3375
0
0
0
0
562.50
562.50
562.50
1687.5
405
405
405
1215
Risk Management
Risk Identification
Effort required to analyze and identify potential risk on new
messaging platform
Measurements
Effort required in measurements analysis and planning. i.e.
which anti-virus software to purchase, which algorithm to use in
data encryption etc, manpower to implement the
measurements such as anti-software installation, application
modification.
Mitigation
Cost of standby servers, man effort required to synchronize
standby servers with production server
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6. TCO Justifications & Assumptions
1. Evaluation & Selection
a. Solution evaluation & analysis
On Premise – As the existing email system has already been put in place, no further evaluation of
features & functionality will be required until a decision to do a major upgrade to the next version of the
email system is made. Minor version upgrade cost can be factored in under application maintenance
cost. As such, it is assumed that the cost will stay at zero for the next three years
Cloud Solution – Assuming that an IT team which consists of 1 Solution Architect and 2 consultant will
spend 5 business days to evaluate the features and functionalities of the existing/new system and build
the new system prototype out of their analysis. The cost will be estimated at $8700(refer to Appendix
for cost breakdown)
Similarly to On-Premise, no cost will incur on year 2 and 3 unless there is a decision to do a major
upgrade or revamp of the system.
b. Vendor review & SLA analysis (as applicable)
On-Premise – Though there is no vendor involved in supporting the existing email system, there are still
internal SLA with the end-users which require continuous review, analyze and improvement to ensure it
stays relevant with the ever changing business environment.
Cloud Solution – The existing system SLA should still be applicable. However, there will be additional
effort for the IT manager to bridge the gap between end-users and cloud provider. As such, the cost for
this component in cloud maybe estimated as 1.5 times the cost of on-premise.
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Cloud Computing – CA 1
2. IT Infrastructure Hardware, Software & Support
a. Server & storage hardware & maintenance
b. Operating system, database, security, backup software & maintenance
c. Administrative IT costs for systems & database
On-Premise – Assuming to maintain the on-premise email system we need the following IT expertise: IT
Manager, Database Administrator, and Network and Computer System Administrator.
We assume there is only one Network and Computer System Administrator who spends 10% of his/her
man-days to do the administration and maintenance. The Database Administrator will spend 5% of his
/her man-days to do the database maintenance. IT Manager will spend 5% of his/her man-days to
supervise and manage the Network and Computer System Administrator and Database Administrator.
Cloud Solution – Assuming to maintain the cloud email system we need the following IT expertise: IT
Manager, and Network and Computer System Administrator.
We assume there is only one Network and Computer System Administrator who spends 5% of his/her
man-days to do the administration. IT Manager will spend 1% of his/her man-days to supervise and
manage the Network and Computer System Administrator.
References:

Appendix 9.2

Appendix 9.4 Breakdown Cost – IT Infrastructure Hardware, Software & Support
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Cloud Computing – CA 1
3. Application Subscription Costs OR Application License Costs
a. ERP & CRM application subscription or license cost
b. Application maintenance
In order to run Microsoft Exchange Server 2007 on-premises, organizations will need to purchase the
following:
• Server Software for Microsoft Exchange Server 2007
• Client Software for Microsoft Exchange Server 2007
• Windows Server software and client (i.e. CAL) licenses
• Server Hardware Platforms
• Software Assurance
For the purposes of this study, we made a number of simplifying assumptions about pricing for
Microsoft Exchange Server 2007, as follows:
1. We based our acquisition pricing only on the discrete Microsoft Exchange Server and Client
licenses, not the Core or Enterprise Suite licenses. We used Microsoft Standard CALs at
$67/user, and Microsoft Enterprise CALs at $25/user. (Note: The Enterprise CAL is additive and
requires that a Standard CAL also be purchased for each user, so the total cost of an Enterprise
CAL is $92/user.)
2. We assumed an industry standard volume discount of 20% on the software list price.
3. We chose to use Windows Server Standard Licenses at the list price of
$699/server, and Windows Server Standard CAL licenses at $40/user.
4. We applied a 25% annual charge for Software Assurance to the total cost of all Microsoft
Exchange Server software purchased, as well as to the cost of the Microsoft Windows Server
software purchased.
ON PREMISE LICENSE COST CHART FOR 1st YEAR
Microsoft Exchange Server 2007
COST USERS ACQUISITION COST
Average No of Users
90
%Users of Standard CALs
50%
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Cloud Computing – CA 1
%Users of Enterprise CALs
Exchange Server 2007 Licenses(Standard)
50%
699
1
Total Exchange Server Cost
$699
$699
Exchange Client Licenses
% Exchange CALs (Standard)
$67
45
$3,015
% Exchange CALs (Enterprise)
$92
45
$4,140
Total Exchange Client Cost
$7,155
Windows Server License
Windows Server License (Standard)
Windows Server CAL (Standard)
$699
1
$699
$40
90
$3,600
Total Windows Server Cost
$4,299
Total Software Cost
$12,852
20% Volume discount
$2,570.40
Software cost after discount
Maintenance Cost
$10,281.60
$26
90
$234
4. Application Solution Deployment Cost
a.Detailed design
On Premise- After a solution is drawn up a project manager would be needed to define project
objectives and scope for each year. Additionally to support him and give technical advice a consultant
would be needed. Both of them would work together to improve the existing processes, identify
process gaps and data sources. They would also need to have constant meetings with other senior level
management and document business requirements for each year. The feedback from end users would
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also be considered when documenting and defining business requirements. The project manager and
consultant would finally be responsible for coming up with the final project plan. The process would last
roughly for 1 week thus it would be around 3500 per year (Appendix 1). This exercise would happen
once a year and it would be a recurring cost for each year because new business requirements arise due
to the nature of the business and technological trends.
Rates:
Project Manager -400 per day
Consultant – 300 per day
Cloud Solution- As the cloud solution would not need application solution deployment this cost would
not be incurred.
b. Configuration & deployment
On Premise- Two systems analysts would be required to perform the configuration and deployment.
They would check whether the application adheres to the specifications and do the configuration. They
would also perform the integration testing, user acceptance testing and data migration (if needed). It
would take 2 analysts a month to complete this task and the cost would be a recurring cost for each
year. The total cost would be 12 000 (=300x2 x 20(working days in a month)) per year.
Rates:
Systems Analyst – 300 per day
Cloud Solution- As the cloud solution would not need an application solution deployment this cost
would not be incurred.
5. Initial and Ongoing Training Cost
a. User Training:
On Premise:- Initially we target to implement to dept 'A' with a traning for 5 days at the rate of $300
per man day leading to a total of $1500. Second year, we roll out to dept 'B' and as well as dept 'c' as
the popularity of the website has grown. So we have scheduled the training for both the teams on the
same days. But since the timings were not suitable for both the departments we have scheduled to
conduct the trainings separately. For year 2 the total training cost incurred was $1500*2=$3000.
In year 3, if we assume that we have implemented new changes and should train all the teams for a 1
day each = 3*300=900.
In year 3, if there is one additional dept 'D' then the cost will add up another 6 mandays @ $300 which
makes a total of $2700 for year 3.
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Cloud Computing – CA 1
b. Administrator Training
Cloud:b. Administrator Training
Year 1 we have 1 day administrator training @ $300. Since we project that there will be additional 2
departments in Year 2, the administrator costs will be double at $600.
Year 3 will have additional department for which the cost will be $300 again.
Cloud:- The training cost will remain the same for both the on-premise and cloud implementation, as
the infra/setup is transparent to the user training.
6. Downtime Cost
On-Premise – According to the study from Radicati Group, MS Exchange Server 2007 needs an average
of 2 hours of scheduled downtime per month to do maintenance and update. And 1 hour unscheduled
downtime per month.
Cloud solution – According to the study from Radicati Group, Google Apps does not require scheduled
downtime to do maintenance and update (the scheduled downtime for maintenance is eliminated from
the Google Apps SLA). And it has 0.8 hours of unscheduled downtime per month.
References:

Appendix 9.4 Breakdown Cost – Downtime Cost

http://www.radicati.com

http://itmanagement.earthweb.com/features/article.php/3916426/Google-Cozies-Up-toMicrosoft-Exchange.htm

http://googleblog.blogspot.com/2008/10/what-we-learned-from-1-million.html
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7. Risk Management
a. Risk Identification
Quoted from an online journal “While cloud computing has its own challenges for risk management,
many of the contemporary risks can still be applicable”. To paraphrase, the statement also means cloud
do not only have its own unique risk but also contain risk that is already exists in traditional on-premise
environment. Cloud has also made application cycle more complex with the involvement of third-party
ware. As such, it is likely that the cost of effort required to identify risk in cloud would be 1.5 times more
than on-premise. Assuming the company policy requires solution architect to spend at least 5 days every
year to review and identify any possible on-premise implementation threats and risks. The estimated
risk identification cost for on-premise could be $4200 per year and for cloud.
b. Measurements to reduce risk (Cost required to prevent/avoid disaster)
although cloud potentially has more risks/threats than on-premise, the cost required from cloud
customer to implement measurements may not be higher than on-premise. This is because the cost for
implementing measurements such as anti-virus software, data encryption can be transferred to cloud
provider. However, cloud do has its own unique risk (e.g. vendor lock out) which may require additional
measurements (e.g. subscribe to other vendor for standby). These measurements may incur additional
which may not be presence in on-premise.
Assuming in our case, the software cost such as anti-virus, spam filtering has already been factored in as
part of the software cost and only man-days effort is required to install/configure/update these
software and the budgeted man-days cost per year to manage the measurements is 15% of the system
cost. The estimated measurement cost for on-premise would be xxx * 1.15
Assuming the budget for implementing measurements in cloud is also 15%, the budget may not be
enough for additional subscription to other clouds. However, the budget can be used for other
measurement such as doing backup of data from cloud to on-premise.
As such, due to company policy, the cost of measurement potentially are the same for cloud and onpremise, however the effectiveness of the measurements could be different with cloud been more
effective considering the cloud provider having better technologies and infrastructure to implement
better measurements.
c. Mitigation Cost (Cost required to mitigate the suitable if disaster happens )
Mitigation cost may include cost to setup a smaller scale cold/standby email system that will be
activated should the running email system fail. Assuming the cost of setting up a smaller scale email
system is 50% of the actual email system, mitigation cost can be estimated at xxx * 1.4
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Cloud Computing – CA 1
For cloud, this cost can be fully transferred to cloud provider. It is assumed that if the cloud provider
fails to recover from any form of disaster, they will be reliable for any monetary damage made to their
customer’s business.
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Cloud Computing – CA 1
7. Cost Comparison Between On-Premise and Cloud Solution
Diagrams
8. Recommendation
Cloud-based email is always cheaper for companies with fewer than 15,000 users.2 In the scenario
presented in this report
2
www.forrester.com/rb/Research/should_email_live_in_cloud_comparative_cost/g/id/46302/t
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9. Appendix
9.1 Salary of IT Staff
Souce:Salary of IT Staff - http://www.robertwalters.com.sg/career-advice/salary-survey.htm
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Cloud Computing – CA 1
9.2 Man Power Cost in Annual/Month/Day
Source : (Based on Appendix 9.1)
S/N
1
2
3
4
Role
IT Manager
Solution Architect
Consultant
Administrator
(Database/Application)
Annual($)
100, 000 to 150, 000
150, 000 to 250,000
80,000 to 140,000
80,000 to 100,000
Month($)
125,000/12 ≈ 10400
200,000/12 ≈ 16600
110,000/12 ≈ 9200
90,000/12 ≈ 7500
Per Day($)
125,000/12/20 ≈ 520
200,000/12/20 ≈ 840
110,000/12/20 ≈ 450
90,000/12/20 ≈ 375
*assume 1 year man-days is 240 days. 1 working day is 8 hours.
9.3 Breakdown Cost – Evaluation and Selection
On Premise
Cost Components
Solution evaluation &
Analysis
Vendor Review & SLA
Year
Description
Cost($)
1
2
3
1
2
3
IT Manager spend 5 days every year
to review SLA
0
0
0
5 * 520 ≈ 2600 (yearly)
Year
Description
Cost($)
1
1 Solution Architect and 2
consultant will to spend 5 man-days
to evaluate the features and
functionalities
IT Manager spend 7.5 days every
year to review SLA with end-users
and cloud provider
(5 * 840) + (10 * 450)
≈ 8700
Cloud
Cost Components
Solution evaluation &
Analysis
Vendor Review & SLA
2
3
1
2
3
18
0
0
7.5 * 520 ≈ 3900(yearly)
Cloud Computing – CA 1
9.4 Breakdown Cost – IT Infrastructure Hardware, Software & Support
On Premise
Cost Components
Year
Server & storage
hardware &
maintenance
Operating system,
database, security,
backup software &
maintenance
Administrative IT costs
for systems & database
1
2
3
1
2
3
1
2
3
Description
Cost($)
Administrator spends 5% of his/her
man-days which is 12 days per year
to do the following:
 Email Account
Administration
 Email System Monitoring
 Network Monitoring
 Maintenance
Administrator = 375 * 12 = SGD 4500
DB Administrator = 375 * 6 = SGD
2250
IT Manager = 520 * 6 = SGD 3120
Database Administrator spends
2.5% of his/her man-days which is 6
days per year to do the following:
 DB Administration
 Maintenance
IT Manager spends 2.5% of his/her
man-days which is 6 days per year
to do the following:
 Supervise
 Manage
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Cloud Computing – CA 1
Cloud
Cost Components
Year
Server & storage
hardware &
maintenance
1
Operating system,
database, security,
backup software &
maintenance
Administrative IT costs
for systems & database
Description
Cost($)
Administrator spends 1% of his/her
man-days which is 2.4 days per year
to do the following:
 Email Account
Administration
Administrator = 375 * 2.4 = SGD 900
IT Manager = 520 * 0.6 = SGD 312
2
3
1
2
3
1
2
3
IT Manager spends 0.25% of his/her
man-days which is 0.6 days per year
to do the following:
 Supervise email account
creation or deletion
9.5 Breakdown Cost – Downtime Cost
On Premise
Cost Components
Scheduled downtime
Unscheduled downtime
Year
Description
Cost($)
1
2
3
Administrator spends 2 hours per
month for the scheduled downtime
to do maintenance, update and
patch.
Administrator spends 1 hour per
month for the scheduled downtime
to do maintenance, update and
patch.
Administrator = (375 / 8) * 2 * 12 =
SGD 1125
Year
Description
Cost($)
1
2
3
1
2
3
-
-
Administrator spends 0.72 hour per
month for the scheduled downtime
to do maintenance, update and
patch.
Administrator = (375 / 8) * 0.72 * 12 =
SGD 405
1
2
3
Administrator = (375 / 8) * 1 * 12 =
SGD 562.50
Cloud
Cost Components
Scheduled downtime
Unscheduled downtime
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Cloud Computing – CA 1
According Google Apps SLA, the
uptime is 99.9% per year, so the
downtime is 0.1% per year.
Downtime per year = 360 * 24 *
0.001 = 8.64
Downtime per month = 0.72
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Cloud Computing – CA 1
9.x Breakdown Cost – Risk Management
On Premise
Cost Components
Risk Identification
Year
Description
Cost($)
1
solution architect spend 5 days
every year to review and identify
any possible on-premise
implementation threats and risks
5 days * 840 ≈ 4200 (yearly)
Company policy indicates that the
annual budgeted cost for
implementing measurements to
reduce risk in email system should
be kept to 15% the cost of the
email system.
Assuming the cost of setting up a
smaller scale email system is 50%
of the actual email system
(Cost of IT Infrastructure & Support
Cost) * 1.15 ≈xxx (yearly)
Year
Description
Cost($)
1
solution architect spend 7.5 days
every year to review and identify
any possible cloud implementation
threats and risks
7.5 days * 840 = 4200 per year
Company policy indicates that the
annual budgeted cost for
implementing measurements to
reduce risk in email system should
be kept to 15% of the cost of the
email system.
NA
(Cost of IT Infrastructure & Support
Cost) * 1.15 ≈xx(yearly)
2
3
Measurements
1
2
3
Mitigation
1
2
(Cost of IT Infrastructure & Support
Cost) * 1.4 ≈xxx (yearly)
3
Cloud
Cost Components
Risk Identification
2
3
Measurements
1
2
3
Mitigation
1
2
3
22
This cost has been transferred to cloud
provider