Other Costs Hide Well

Not all costs are easily available on invoices or support agreements—many are not so obvious and take a bit more time to figure out. These costs most definitely have an impact on our overall cost/value equation.

Opportunity costs

In our daily lives, we’re usually asked to make decisions. They could be small decisions; whether to go out for dinner or to stay home to cook. Of course, we have larger decisions, such as whether to leave our current employer to start our own business. In thinking about these decisions, we probably consider what we might miss out on if we choose one option or another. In either choice, we likely miss out on something—this is called opportunity cost.

Opportunity cost is what we might lose out on by selecting the other option. For example, if we go out on our own to build a business, we might be forgoing the opportunities available if we stay put at our current employer. On the other hand, if we stay with our current employer, we might miss out on the adventure of building our own company! Opportunity costs are tricky because it's uncommon to have full certainty about the outcome of the unchosen path. However, knowing, or at least estimating, the opportunity cost can have a big impact on an overall business decision.

Sunk costs

Occasionally, when weighing the options, we might consider how much we have already invested in the current situation. This past investment might have little value going forward, and we might not ever be able to recoup that investment. These are sunk costs—so-called because of the time and money that we’ve already sunk into where we are today. Some decision-makers might be tempted to just keep what they have because they have already spent that money and do not want to spend any more. Why do we need new computers when we have perfectly good computers already?

This is where we really have to make use of the cost versus value perspective. Just because we have spent money in the past doesn't mean that it will be the most effective means to deliver value in the future. This “just keep what we have” mindset does not consider improvements in capabilities, efficiencies, and general obsolescence—all of which contribute value. Many times, the psychological pain of saying goodbye to sunk costs can be offset by the ongoing operational costs. For example, sometimes it costs more to keep the old stuff than to just walk away and apply energy to new stuff.

Migration costs

We just can’t wave a magic wand and transport all our IT assets into the cloud. There needs to be lots of planning, analysis, and hard work. We might have to first get a solid inventory of all our services to make sure we don’t accidentally break something while migrating. Maybe because we’re new to cloud computing, we want to buy some training subscriptions (such as this course!) to help our people up-skill. We might want to hire a consultant to make sure we don’t do anything short-sighted. If we're going to be moving out of a leased data center, we might have to pay a penalty to cancel that lease early. During a migration, we might have some redundant resources running across our landscape as we migrate data.

Downtime costs

It is not uncommon for aging equipment or architectures that have grown overly complex over time to cause stability issues. When those systems go down, especially in unplanned scenarios, that costs us money. Frequent outages can also impact the confidence and reputation of an IT department as well, which incurs its own costs. If our business partners do not have confidence in us, it is much harder to get things done. Additionally, some of our business partners might opt for external providers, which may or may not adhere to the same corporate or regulatory rules that our IT department operates under. Downtime costs can compound and spread into many areas relatively quickly.

Cost avoidance

We should also consider how to avoid costs in the first place. Let’s say we’re outgrowing our existing data center and need more room. Offloading some workloads to the cloud might be far better than having to build on to our on-premise data center. Let's say our company is expanding into a new region and local regulations require us to physically host data in that region. Choosing to use a cloud provider’s existing data center in that region would be much quicker and easier than trying to build our own.

Similarly, if we opt for open-source software options, we may be able to avoid licensing costs. Most cloud providers offer their own versions of popular services, which might provide a less expensive alternative to other commercial products. Additionally, cloud provider-managed services, such as AWS's RDS, DynamoDB, and Redshift, remove the overhead needed to manage the underlying infrastructure and complexity, directly contributing to a lower cost of ownership.

Staffing costs

There’s another cost which sometimes isn’t as obvious but is real nonetheless. If, through migrating to the cloud, we can modernize our architecture, that might make staffing easier. This allows us to recruit from a larger talent pool. Conversely, cloud skills are popular in the job market right now, so it’s likely that we’ll need to figure in higher salaries for new hires or existing staff who will be upskilling. Providing opportunities and resources for our existing employees to learn new things might also help us retain staff. As we know, staff turnover can have a pretty drastic cost as well.

Intangible costs

Companies that have moved to the cloud have also realized some benefits that might not be immediately quantifiable. Many companies find that the flexibility of the cloud allows them to be much more agile and responsive to customer and stakeholder needs.

The following are some common intangible benefits companies can realize through a migration to the cloud:

• Increased agility to respond to business partner needs and fluctuations in customer demand.

• Improved external security posture through more holistic and accessible tools.

• More granular and focused access and authorization, supporting the principle of least privilege.

• Smoother and more efficient software development lifecycle with automation and repeatable processes.

Other cost factors

Just when we thought we were getting a pretty complete picture of all our costs, we are thrown into the complex world of corporate finance. How your company does its accounting and finances things can have a big impact on the cost equation. We’ll talk about one of these factors in the next lesson. Don't stress too much in this area because this is mostly the domain of the finance department, the CFO, and maybe the treasurer. Just know that other things influence the cost discussion.

And this is precisely why we need to become better at changing the conversation from pure cost numbers to value!