Business Cost Metrics

Question 1

Up-front Costs

Answer 1

• Represent the initial investment required by the organization to fund the IT resources it requires
• Up-front costs for the leasing of cloud-based IT resources tend to be high
• Examples of up-front costs for cloud-based environments can include the labor costs required to assess and set up a cloud environment

Question 2

On-going Costs

Answer 2

• Represent the expenses required by the organization to run and maintain IT resources it uses
• On-going costs for the operation of cloud-based IT resources vary, but often exceed the on-going costs of on-premise IT resources(especially over a longer period of time)
• Examples of on-going costs for cloud-based environments include virtual hardware leasing fees, bandwidth usage fees, licensing fees and labor

Question 3

Cost of Capital

Answer 3

• A value that represents the cost incurred by raising required funds
• The relevancy of this cost depends on how the organization goes about raising the funds it requires
• If the cost of capital for an initial investment is high, then it further helps justify the leasing of cloud-based IT resources

Question 4

Sunk Costs

Answer 4

• An organization will often have existing IT resource that are already paid for and operational
• The prior investment that has been made in these on-premise IT resources is referred to as sunk costs
• When comparing cloud-based IT resources to on-premise IT resources with sunk costs, the up-front costs for on-premise IT resources is significantly lower
• It can therefore be more difficult to justify the leasing of cloud-based IT resources

Question 5

Integration Costs

Answer 5

• Integration testing is a form of testing required to measure the effort required to make IT resources compatible and interoperable within a new environment, such as a new cloud platform
• Depending on the cloud deployment model and cloud delivery model being considered by an organization, there may be need to further allocate funds to carry out integration testing and additional labor related to enable interoperability
• High integration costs imposed by cloud providers can make the option of leasing cloud-based IT resources less appealing

Question 6

Locked-in Costs

Answer 6

• Cloud environments can impose portability limitations
• When performing a metrics analysis over a longer period of time, it may be necessary to take into consideration the possibility of having to move from one cloud provider to another
• Due to the fact that cloud service consumers can become dependent on proprietary characteristics of a cloud environment, there are locked-in costs
• Can further decrease the long-term business value of leasing cloud based IT resources.