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Cost Analysis Table
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Cost Center
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Price ($USD)
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Cost Types
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Amazon EC2 @ 3 years service
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$1,050
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Fixed Cost
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Addition Amazon EC2 used on demand
price
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$0.068/hourly
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Variable Cost
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Amazon S3 @100TB used
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$2,200
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Variable Cost
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AWS System Operations Training for
6 people (4 day)
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$11,500
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Fixed Cost
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AWS fundamentals Training for 8
people (1 days)
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$4,500
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Fixed Cost
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3rd Party Migration tools
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$200
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Fixed Cost
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IT Labor
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$849
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Variable Cost
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AWS Assessment, Planning,
Migration
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$153
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Variable Cost
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Total cost without addition Amazon
EC2 used
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$18,472
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Investing for Amazon Elastic
Computing Cloud and Amazon S3 data storage will cost approximately $18,472 for
the first year with 3 years of standard cloud computing service and 100 TB for
data storage. IVK will need to pay
additional costs if all of their reserve hours are used. They would also incur
the cost of changing organization system including, software service cost,
training, migration, in-house and third-party labor for migration, and
service.
Variable
Cost
In the current year, the variables costs of
IVK are estimated at $481,450, and other IT infrastructure expenditures are
estimated $660,800 and $854,000 for database management which costs more than
$2 million (Austin, 2016 ). Implementing Amazon Elastic Computing Cloud (Amazon
EC2) and Amazon S3 data storage does not cost much for IVK, because AWS offers
free sign up with reducing compute costs.
Picture 1: AWS Pricing
In the case of IVK, the IT
department should invest in Amazon Elastic Computing Cloud (Amazon EC2) and
Amazon S3 data storage. Before all departments in IVK start to invest in Amazon
EC2 and Amazon S3, the IT department should be the first department that
compares the pros and cons of AWS and the old system. It will be a very small
cost for the IT department to try both systems because Amazon Web Service
provided free all products tried for 12 months. Amazon provided Amazon EC2 free
for 720 hours per months and 5GB of standard storage of Amazon S3 (Amazon,
2018). If the IT department uses more access than what is available in Amazon’s
free trial option, the IT department could pay for extra hours and space for
both systems at the on-demand price, which will count as a variable cost. In
addition, IVK does not need to pay extra money for security software since
Amazon already includes that in their product.
Before moving the whole system to a
cloud based one, people inside the organization should have training sessions
to get some ideas about the incoming system. Also, some IT employees and the
managers of each department need to have some training on the new system, so
they have the ability to teach their employees about the new system. Carstaffix
Training provided on-site AWS system operations training for 6 people for
$11,500 and $4,500 for AWS fundamentals training for 8 people. If IVK company
has more people for training, Carstaffix charges $1,800 each additional person
for AWS system operations training and $500 per additional person for
fundamentals training, which is a variable cost.
If Amazon Elastic Computing Cloud
and Amazon S3 data storage are used in all IVK departments, there will be some
cost structure changes. Normally, all AWS service costs will count as variable
costs because AWS costs will change depending on the organization using them.
However, Amazon also provides the Amazon
EC2 Reserved Instances option, which changes some variable costs to fixed costs
and provides a discount up to 75 percent. Another option is for IVK to reserve
Amazon EC2 for the average of the number hours that have been used regularly
per month, and extra hours will count as the variable cost that will be paid at
the on-demand rate. The table below shows the price rate for unlimited standard
service for the 3-year term on Amazon EC2 for Windows software (Amazon, 2018).
All upfront payment options are recommended because it saves IVK about 41
percent from on-demand costs. If the credit is overused, IVK will need to pay
an extra cost. The variable cost will be an on-demand rate, which is 0.068
dollars per hour (Amazon, 2018).
Table 1: Amazon EC2 Reserved Instances Pricing
In addition, investing in Amazon S3
data storage will count as a variable cost since the cost will change based on
the amount of space that IVK company uses for storing their data. The Amazon S3
standard data storage will cost 0.023 per GB per month on the first 50 TB, and
the next 450 TB will cost 0.023 dollars per GM per month (Amazon, 2018)
Table 2: Amazon S3 Pricing
Fixed Cost
Fixed costs are the costs that need
to be paid in the same amount per month, including the amount of production or income
changes, including rent, controlling costs, reduction, and salaries. As per
Austin’s calculation and their data, IVK, a loan servicing company, needs an
SAP system, which will cost around $5-6 million. That means the company will
have to spend at least $5 million to implement the whole SAP system not
including maintenance cost and upgrade price in the future. If IVK has to spend
a fixed percentage of the total from their fixed value, then it might be 5% to
10% of $5to 6 million, and it should be affordable for IVK's financial health.
Table 3 : Fixed cost
Also, the entire IT budget is around $18 million which is
also significant compared to the total SAP implementation cost (Austin, Nolan
& O’Donnell, 2009). However, to extract the maximum value of this SAP
implementation, IVK needs to figure out how much they can save from
implementing the SAP system.
.
Payment
There are three types of payments
for EC2. The first is the no money upfront option which would give the firm a
higher monthly rate of $31.46. The second is paying partial upfront which would
give a monthly rate of $15.11 and savings of 39% over the on-demand option. The
third option is to pay all upfront with no monthly fee and a savings of 41%
over using the on-demand option. Amazon Web Services is a pay-as-you-go pricing
model which means that a firm only pays for what data, storage, security, etc.
it actually uses. (Amazon, 2018). There are no licensing fees or long-term
contracts. (Brkan, 2018). The option for no upfront costs for implementing
Amazon Web Services would be the ideal choice for IVK. If IVK were paying for
the use of AWS, it would be as if they were paying for utilities such as water
or electricity, because they would get charged for only what they consume and
need to use.
References:
Amazon Web Service. (2018). Amazon EC2 Reserved Instances Pricing. Retrieved from
https://aws.amazon.com/ec2/pricing/reserved-instances/pricing/
Amazon Web Service. (2018). Amazon S3 Pricing. Retrieved from
https://aws.amazon.com/s3/pricing/
Amazon Web Service. (2018). AWS Free Tier Details. Retrieved from
https://aws.amazon.com/free/?sc_ichannel=ha&sc_icampaign=signin_prospects&sc_isegment=en&sc_iplace=sign-in&sc_icontent=freetier&sc_segment=-1
Amazon Web Service. (2018). AWS Pricing. Retrieved from
https://aws.amazon.com/pricing/?nc2=h_ql_pr
Asia Financial Institutions. (2014, January). Digital Banking in Asia: Winning approaches in
a new generation of financial services. McKinsey&Company.
Austin. R, Nolan. R, O’Donnell. S. (2009). The adventure of an IT leader. Boston, Massachusetts. Harvard Business School Publishing Corporation.
Brkan, S. (2018, September 18). How much does AWS cost? Cutting your cloud costs using AWS. Retrieved October 16, 2018, from https://cloudacademy.com/blog/how-much-does-aws-cost/
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