Cloud Computing TCO Calculation for SMEs

In the scope of the CloudingSMEs project ( SME associations and cloud experts are trying to produce some good practices for SME companies considering cloud adoption. One of these practices instructs SMEs to calculate the Total Cost of Ownership (TCO) of the Cloud Solution and compare it to alternative solutions (e.g., conventional in-house solutions, managed services).

Cost reduction is among the compelling benefits of a cloud solution. However, it cannot be taken for granted. SMEs planning to adopt the cloud should investigate whether there is a potential for significant cost savings, especially if this among the main reason for which they are considering cloud solutions. In several cases cloud solutions offer reduced Capital Expenses (CAPEX), but without achieving longer terms cost reductions over non-cloud solutions, mainly because they are associated with significant Operational Expenses (OPEX).

SMEs are advised to calculate the TCO of the IT infrastructures and services and to compare it the respective TCO of possible cloud solutions. The following steps are essential:

  1. Calculate the TCO of your current IT infrastructures and services, focusing on the services that you are considering to migrate to cloud. Make sure to take into account all cost, including hardware, software, networking/telecommunications, data center costs, energy costs, personnel costs, maintenance costs, space costs, consulting costs and more.
  2. Calculate the TCO of your cloud solution based on the charging/costing schemes offered by the potential cloud providers. You may need to ask for offers from one or more cloud provider. Make sure to include all costs, including hidden costs associated with data migration to the cloud, (required) upgrades to networking and telecommunication services, legal costs for cloud contracts, consulting costs and more. The costing exercise should pay particular attention to possible hidden costs such as for example exit costs associated with the migration of data and associated meta-data from one cloud provider to another (upon exit).
  3. Compare the two calculations and execute simple what-if scenarios. Assess whether the cloud migration can lead to cost benefits and assess their level. Identify tariffs that are essential for achieving the cost benefits and use them in case of negotiations with cloud providers.

All SMEs considering cloud adoption can attempt to compare cloud costs with their existing or alternative IT deployment options. Depending on the SME size/type different cloud services and costing options will be considered in order to do the comparison. Small SMEs are likely to have easier time calculating cost items and cost structures both of the internal IT alternatives and for the candidate cloud solutions. CloudingSMEs will be publishing success stories that demonstrate cases where cost reduction is straighforward.

The toolbox of the CloudingSMEs project provides a TCO Calculator tool (accessible through a link at the right side of, which allows one to compare the cost of cloud services with the cost of maintaining a data center solution for supporting the same services. CloudingSMEs welcomes feedback for improving the calculator. At you could also register in order:

1) To receive updates about the various tools for decision support

2) To receive the newsletter editions:

3) To provide feedback through surveys:

You can also inform CloudingSMEs about successful cloud adoption at:


BY JOHN SOLDATOS, AIT Associate Professor

Contact Us