Cost Factors on Migration to the Cloud
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Cost Factors on Migration to the Cloud

Ashish Jain, CTO, CalSTRS

Ashish Jain, CTO, CalSTRS

CalSTRS adopted digital transformation as a strategic goal in 2019 to maximize operational efficiency and provide the best possible digital experience to our members. To achieve this goal, CalSTRS isimplementinga hybrid cloud operating model toprovide cost-effective security, agility, usability, and flexibility as a critical foundation for fulfilling CalSTRS’ enterprise strategies.In keeping with our fiduciary responsibility, CalSTRS conducted extensive analysis and determined a single vendor will provide the most cost-effective implementation.

CalSTRS’ Technology Services Branch, with over 200 staff, is responsible for operating a portfolio of approximately 135 systems/applications to support the administration of pension benefits for nearly one million benefit recipients and over one billion dollars in benefit payments per month. Nearly two-thirds of the application portfolio is already hosted in third-party data centers, many of which are in varying forms of cloud solutions. CalSTRS embarked on a procurement effort during the past year to obtain a vendor partner to assist withmigrating more on-premise applicationsto a combined operating model of both on-premise systems and cloud services. This effort will achieve CalSTRS’ business objectives of further enhancing business resiliency through continuity, recoverability, scalability, elasticity, and security.

"It is critical to understand the various cost factors associated with cloud datacenter migration efforts"

CalSTRS evaluated the pros and cons of multi-vendor versus single vendor deployment. Multi-vendor cloud deployments can lower overall implementation costs but may add an additional layer of complexity and administrative overhead.Since each unique vendor has varying costs for each service, it is possible for collective migration costs to behigher when more vendors are engaged. It is also feasible foran organization to procure one vendor that candirectly manage multiple vendors to avoid the burden of managing multiple contracts, business relationships and service-level agreements,and possibly lower the overall cost.Based on CalSTRS’ business requirements and needs, the organization chose to procure one experienced Migration Service Provider to act as the primary contractor for managingand overseeingseveral other Data Center Providers and Cloud Providers. Additionally, CalSTRS evaluatedadditional cost factors such as Variable Costs, Fixed Costs, Licensing Costs, Tools Costs, and Labor Costs. 

Variable Costs are typically recurring fees paid to a Cloud Provider such as AWS or Azure. This cost is highly variable because it depends on the size of an organization’scloud footprint, for example number of applications, types of cloud services,size orcomplexity of applications.  Variable Costs may also include fees paid to a Data Center Provider (if different from Cloud Provider), especially when co-location is needed.There may also be additional overhead feespaid to aCloud Provider when working through a Migration Service Provider.

Fixed Costs are mainly derived from Licensing Costs, Tools Costs, Labor Costs, and, whenever applicable, new hardware costs. Some situations may warrant purchasing new hardware to enhancean aging on-premise network infrastructure to achieveadequate connectivity to a new hybrid-cloud datacenter or co-location equipment. A migration effort may also necessitate the use of certain migration tools at an additional cost. Ifongoing maintenance and operation (M&O) post-migration is within scope, additional tools may be needed to accommodate changes to IT Service Management (ITSM) and/or IT Asset Management (ITAM) processes that encompass new cloud solutions and services.

The two largest cost factors within Fixed Costs are License Costs and Labor Costs. Almost all software requires alicense agreement,some of which are quite restrictive.It is important to determine if any existing licenses have restrictions that may be prohibitive to how the software can be used after a migration, as some licenses may not be transferable between an on-premise system to an equivalent cloud counterpart.  It is crucial to pay close attention to license agreements when working with a Migration Service Provider to avoid potential pitfalls such as true ownership, transferability and usage constraints,as some license purchases facilitated by a Migration Service Provider may be restricted to a master service contract with that Migration Service Provider.

Another important cost factor associated with Fixed Costs are Labor Costs, which once again is particularly important when working with a Migration Service Provider.When evaluating Migration Service Providers, it was important for CalSTRS to understand labor costs associated with the migration of an application as a one-time activity and ongoing M&O costs.Hourly rate and an estimated level of effort for each deliverable are two key pieces of information that demonstrate how a labor cost component is derived.Assessingthese cost factors enables CalSTRS to accordingly adjust and leverageits own internal resources and talents. 

It is critical to understand the various cost factors associated with cloud datacenter migration efforts. Thorough consideration ofall cost factors improved the accuracyof CalSTRS’ total estimated migration costs. Understanding how costs are derived and allocated by each cost factorenabled CalSTRS to negotiate more effectively, prioritize the migration scope based on urgency and criticality of CalSTRS 

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