This article on CIO.com came back to mind as I was passionately arguing the case for the cloud defence. Its definitely worth a read for anyone assessing whether to move to the cloud but for those short on time it pointed out several errrors with a TCO calculation completed by McKinsey. One of the key findings was the following:
What does this tell us? Properly assessing the cloud business case cannot be done by pure business accountants or operational research math junkies alone. It requires a balanced team that can model the business accurately along with making good technical judgements. The example CIO.com tore apart just goes to show what mistakes are made when even the very best business consultants are put to work without the technology content.The Issue isn't Utilization Rate, It's Cost per Unit of Computing Capacity: McKinsey does not recommend that companies attempt to mirror the characteristics of an Amazon Web Services by creating an internal cloud; instead, it proposes that server consolidation via virtualization be the primary strategy for cost reduction. By aggressively pursuing server consolidation, IT organizations can raise server utilization rates to nearly the 38 percent that Google accomplishes, McKinsey advises.However, the raw utilization rate is not the point. The main question should be, what does a unit of compute capacity cost me? Google and its cloud brethren run their data centers at around 50 percent of the cost of a typical IT data center, so gaining the same utilization rate as Google still leaves you at twice the cost per compute capacity unit.
In the early days of the cloud, many such TCO assessments were completed by trusted advisors to make the best conclusions. Perhaps this has anchored my colleagues minds on the cloud business case at the wrong end of the scale. Time methinks for a revisit.
Disclaimer: The views contained in this post are my own and not necessarily the views of my past or present employers