Virtualisation and Cloud Computing

This report compares the costs of IT infrastructure investment and cloud-based infrastructure, and discusses the factors that contribute to IT company expenditure. It analyzes the costs of hardware, office space, electricity, data backup, and insurance, and concludes that a cloud-based infrastructure is significantly cheaper.

Running head: VIRTUALISATION AND CLOUD COMPUTING
VIRTUALISATION AND CLOUD COMPUTING
Name of the Student:
Name of the University:
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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
The IT crowd..........................................................................................................................3
The IT infrastructure and hardware........................................................................................4
The location and the physical space.......................................................................................5
The power requirements and electricity.................................................................................5
The data backup and insurance costs.....................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8
Appendix..................................................................................................................................10

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Introduction
The chief financial officer of any company in Turkey before investing money in the IT
department should sit with the company’s IT team and the chief technological officer to
discuss the probable cost of the IT infrastructure and compare it to a cloud based alternative.
This report focusses on comparing of the IT infrastructure investment cost and the cloud
based infrastructure costs and reports which one is a better choice. The report will also
discuss about the costs of hardware in Turkey and compare it with the cost of web based
services in Turkey. Implementing a cloud based architecture in a company also depends on
the host country’s cloud or network infrastructure.
The company that is being discussed in this report is a small to medium enterprise
consisting of 100 employees and 20 servers. Five of these servers are being used for online
purchasing system application and the rest is used for other purposes like Authentication,
DNS, Web, DHCP and FTP. The main sections that increases the cost are the energy needs of
the company, the server and devices hardware costs, the staffs, insurances and the cooling
cost.
Discussion
In the following section, the report will discuss about the various factors that will add to the
IT company expenditure.
The IT crowd
The main expenditure for an IT company comes from its biggest assets, which is its
employees. The IT department employees are the key members of the IT department. Their
sole job is to keep the company’s organization infrastructure maintained. Each employee
needs additional hardware to work which brings in extra costs. The skills of the employees

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are needed to operate complex IT applications and servers. The company being looked at it
this report has around 100 employees. They are an indispensable part of the IT Company.
The main section of an IT company is taken by employees who are assigned towards the
maintenance of the infrastructure. The average salary of a software engineer in Turkey is
$24000. For the 100 employees, the expenditure to the company would be 24000*100 or
$2400000. Out of that, the amount spent on the 8 admins needed for the maintenance of the
20 servers would be 24000*8 or $192000. The 8 admin staffs are calculated as follows: 3 for
the online application servers, 1 for the DNS server, 1 for the authentication server, 1 for FTP
server, 1 for web server and 1 for DHCP server. The allotment is based on the most
commonly used admin distribution system in Turkey for a small to medium enterprise.
This cost can be reduced if the entire infrastructure is shifted from hardware based to
cloud based. This will shift the maintenance task to an outsourced cloud service provider. The
average amount charged by a cloud based company for the same job is $72000 annually. This
has been calculated based on the average outsourced maintenance rate of $300 per server per
month in Turkey. So, 300*20 servers *12 months or $72000.
The IT infrastructure and hardware
The IT infrastructure cost is quite huge. The SME we are looking at is an enterprise
with around 20 servers. The other hardware are also included when estimating this section of
the expenditure. The servers are quite costly to purchase. So the initial investment cost comes
quite high just for the hardware. But this is not the end. The maintenance cost of maintaining
these hardware are even higher. Replacing one or two defunct servers brings a sudden
expenditure on the company budget. Each server costs around $2000, so 20 servers would
cost around $40000. Together with the maintenance cost of average $7000 dollars per month,
the total expenditure comes to around $124000.

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This can be totally avoided if the physical infrastructure need for servers is outsourced
to a cloud service provider. This would reduce business cost massively and also give access
to state of the art server facilities which may not be affordable for the SME by itself. This
cost can be reduced to around $72000 by outsourcing the same 20 servers. The cost of renting
1 server for 1 year comes to around $3600.
The location and the physical space
The location of the company matters a lot when implementing IT services. The ability
to access high speed networks and proper communication routes enables the company to
quickly reply to client emergencies and gain new clients. The physical space is also an
important factor here. The hardware or the physical servers purchased will take up additional
space on the company premise. This space could have been better utilized in housing more
employees to increase business productivity and revenues. A medium office space in Turkey
costs around $65000 per year as rent.
This problem could be solved by hosting the servers in a virtualized environment
provided by a cloud service provider. The space saved can then be used to house more
employees or reducing the office space. Smaller office spaces will incur lower rents thus
saving money for the company. Removing the server space, the office can be accommodated
in small offices. Renting a small office in Turkey would reduce the cost to around $39000.
The power requirements and electricity
The electricity bills are a massive part of the company expenditure. The enterprise
taken as an example in this report comprises of twenty physical servers. The numerous
servers present in the company consumes a huge amount of power. Each of the server not
only consumes power for its running but also needs power for the cooling system to keep it
cool. Cooling is an integral part of running a server room. This air conditioning systems

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consumes more power increasing the total expenditure on energy. The average cost for this
energy consumption is $500 per month or $6000.
To save this energy, a cloud based server system will not only reduce the energy
expenditure for the server’s running but also reduce the cooling costs of the system as a
virtual cloud based server needs no cooling. The company would greatly benefit from such an
arrangement. The cloud based system would reduce this extra server energy expenditure to
zero.
The data backup and insurance costs
Insurance costs are another big factor that is needed to be considered when calculating
the total expenditure for an IT infrastructure. An IT company for example the SME taken in
this report, will need to back up its data in a secured medium in case of emergencies or
system failure. For this each year the company has to spend thousands of Turkish lira to
insurance companies to secure their data in case of mishaps. This cost is incurred every year
to secure an uncertain future. Even with these backups their might be a chance that the
backed up data cannot be recovered. This will lead to massive losses for the company. The
cost of doing a physical data protection insurance back up is around $3000 annually in
Turkey.
To prevent this a robust cloud backup infrastructure might be used. This will back up
the important data of the company and securely store it in a reliable, virtualized, cloud based
environment. The disaster recovery part should be mentioned in the agreement before
outsourcing the services in order to secure a free of charge insurance of the company’s data.
This will result in saving of the amount spent on the insurance companies. This cost can be
reduced to zero when outsourcing the servers to another company.

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Infrastructure cost type On premise (Office) Cloud
Admin staff cost $192000 $72000
Hardware cost $124000 $72000
Office space rent costs $65000 $39000
Electricity costs $6000 $0
Data backup cost $3000 $0
Total $390000 (Approx.) $183000 (Approx.)
Table 1 Comparison between on premise and Cloud based IT infrastructure costs
Conclusion
The small to medium enterprise taken in our report can save a lot of money if they shift to a
cloud based environment. From the discussion above, it can be inferred that using a cloud
based infrastructure reduces costs dramatically. The expenditure of the maintenance
employees is cut as an outsourced cloud based system needs to maintenance from the
company’s end. It can also be seen that the hardware and the physical server purchasing and
installation costs can be avoided if the company shifts to cloud based servers. Also a cloud
based servers do not need separate maintenance. This further saves money.
In this report, it can be seen that the location of the company and the physical space
incurs extra expenditure for the company. For example, if the taken SME needs extra space
for the office premise due to extra hardware, it will incur more costs. The solution to this has
also been provided in the form of virtualized environment for hardware implementation that
can be outsourced. The electricity consumption will also add to the company’s expenditure
and can be managed by effectively by replacing the high energy consuming physical servers
with outsourced cloud based servers. The insurance costs of the company can also be avoided
by backing up the important company files in a secure, robust and reliable cloud storage.

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Thus by comparing the on premise costs and the cloud based infrastructure costs, it can be
clearly seen that the cloud based infrastructure is almost 53% cheaper than the on premise
infrastructure.
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Appendix
Figure 1 on premise Infrastructure
Figure 2 Cloud based Infrastructure

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