COMP3xxxx Service Centered and Cloud Computing

Lecturer: Zoheir Ezziane

Topics Covered

• Cloud computing cost models
• Capital (CAPEX) and operational expense (OPEX)
• Total Cost of Ownership (TCO)
• Financial evaluation

Key Points

CAPEX vs. OPEX

• CAPEX:
  • Used for capital purchases.
  • Cannot be deducted from income for corporation tax.
  • Assets retain value over time and appear on the company's balance sheet.
  • Examples: buying a house or car.
• OPEX:
  • Used for expenses that can reduce taxable profits.
  • Immediate consumption, no appearance on balance sheet.
  • Examples: renting a house or hiring a car.
  • Preferred for day-to-day business operations.

Importance of CAPEX and OPEX

• Organizations might prefer OPEX due to complex financial treatments of CAPEX.
• Companies may convert CAPEX to OPEX by borrowing money and repaying it monthly.

Simplified Cost Models

• Traditional IT requires investment in IT infrastructure (CAPEX).
• Cloud services operate on a consumption-based model (OPEX).

TCO

• Includes all costs related to owning (buying) or leasing a product/service.
• Considerations for buying a car: purchase price, insurance, maintenance, etc.
• Considerations for leasing: monthly charges, maintenance, etc.

Consumption-Based Model

• Users pay for the resources they use.
• Better cost prediction and billing based on actual usage.

Pricing and Tools

• Pricing Calculator: Estimates costs of Azure products.
• Total Cost of Ownership Calculator: Compares on-premises vs. Azure costs.
• Azure Cost Management: Involves reporting, budget setting, and cost recommendations.

Minimizing Costs

• Perform cost analyses using Azure Pricing and TCO calculators.
• Monitor usage with Azure Advisor and implement recommendations.
• Use spending limits, Azure Reservations, and Azure Hybrid Benefit.
• Choose low-cost locations and apply tags to identify cost owners.

Financial Evaluation

• Discounted Cash Flow (DCF): Accounts for changes in money value over time.
  • Uses a discount rate based on risk and market expectations.
  • NPV calculations are typically over a 3 or 5-year period.
• Net Present Value (NPV): Evaluates project proposals based on future cash flows.
  • Projects ranked based on NPV.
• Internal Rate of Return (IRR): Determines the discount rate for NPV to be zero.
  • Useful for comparing project returns against the company’s cost of money.

Summary

• Moving from CAPEX to OPEX is often seen as a benefit of cloud computing.
• Complete comparison requires identifying all components of TCO.
• Use financial analyses like NPV and IRR for cost and benefit evaluations.

Seminar Topic

• Explore Cloud Computing cost calculators.
• Estimate cloud service costs using IaaS calculators for case studies.