TCO, CapEx, and OpEx

Gone are the days of where you pay once and ride off into the sunset. The industry is changing and renting virtual servers for a deterministic price per hour allows flexibility when investing in a cloud platform. But before you race off and decide cloud bursting, hosted VPS, or a total cloud solution is for you, get your head around the drivers that define your businesses purchases.

Total Cost of Ownership attempts to quantify the financial impact over the life cycle of a product. So you want to deploy a new server for the workplace? No worries. Along with the cost of your server and software, have you factored in power? What about rack space? Network connectivity? Hard drive space and backup? What about the cost of an engineer or technician to install and set up? Bandwidth? Someone has to pay for it all. This all forms a part of TCO. TCO is designed to look at an investment from a strategic point of view. This can then be divided into two streams of expenditure.

Capital expenditure is spend that is aimed at creating future benefits. Generally this is associated when buying fixed assets or extending the life of an asset. This is generally in alignment with a financial year. Where Operation expenditure differs is where the cost is attributed to ordinary business. These are the costs associated to the operation, maintenance, and administration of an investment. Some OpEx budgets extend into the warranty land too.

If you are looking to build a private cloud you would be looking at a CapEx and OpEx expenditure. If this was being stood up brand new a large chunk of money, or capital, is spend procuring networks, servers, licences, and storage. A portion is spent on OpEx. This is the expenditure that focuses around the operation and day-to-day running of an investment. How much does it cost for someone to install VMware, install the software, deploy some guests and set storage profiles and the like? This is where workflow automation and self-service reduce OpEx budgets. Generally an IT persons wage is paid out of OpEx monies.

Albeit a small example and far from an extensive reference, this post is styled to make you think about your infrastructure. This post I hope highlights an important facet of IT that extends beyond just purchasing whats required. It is not just an initial scoping cost that needs to be considered but the ongoing support and costs of maintaining.

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