How to Calculate Financial Outcome of Migrating Infrastructure to Kubernetes

Kubernetes is a powerful system for managing containerized applications in a clustered environment. In essence, it simplifies the process of building, deploying, and scaling applications by grouping containers that make up an application into logical units. Migrating an existing infrastructure to Kubernetes can significantly streamline operations. However, before such a migration, it's critical to calculate the financial outcome to make informed strategic decisions.

I. Understanding the Existing Infrastructure

The first step in calculating the financial outcome of migrating to Kubernetes involves a thorough assessment of the existing infrastructure. The objective is to identify and measure key metrics, including the cost of hardware, software, data storage, networking, and the workforce required to manage and maintain the system. Understanding the total cost of ownership (TCO) for your current infrastructure provides a baseline for comparing potential savings post-migration.

Let's say Company A spends the following annually on their existing infrastructure:

• Hardware costs: $200,000

• Software licensing fees: $50,000

• Data storage costs: $20,000

• Networking costs: $15,000

• Workforce (salaries, training, benefits): $500,000

The total cost of ownership (TCO) for Company A's current infrastructure would then be $785,000 annually.

II. Estimating Migration Costs

Migration to Kubernetes involves costs that can be categorized broadly into setup costs and ongoing costs.

• Setup Costs: These costs include expenses related to planning, design, and the actual migration process. For instance, businesses might need to invest in training or hire Kubernetes experts to facilitate a smooth migration. In addition, there might be costs related to setting up Kubernetes clusters, configuring network policies, and adopting containerization.

• Ongoing Costs: Post-migration, businesses will incur costs to run and manage their applications on Kubernetes. This includes costs associated with the infrastructure (whether it's on-premises, hybrid, or on the cloud), management and orchestration software, and maintaining the Kubernetes environment. It's crucial to consider these costs, which vary depending on the scale of operations and chosen hosting strategy.

In this example, the one-time setup costs $100,000, and running Kubernetes (cloud infrastructure, management tooling and cluster maintenance) costs $470,000 a year.

III. Determining Potential Savings

After migrating to Kubernetes, Company A expects to save:

• Hardware costs: As the company is moving to the cloud, hardware costs drop to zero.

• Software licensing fees: With open-source Kubernetes, software licensing fees drop to zero.

• Data storage costs: Efficient resource usage reduces data storage costs to $10,000.

• Networking costs: With the optimization provided by Kubernetes, networking costs reduce to $10,000.

• Workforce costs: With more automation, workforce costs reduce to $300,000.

So the costs that remain after migration come to $320,000 a year, which is $785,000 - $320,000 = $465,000 less than today. That $465,000 has to pay for running Kubernetes.

IV. Calculating the ROI

In the first year, the migration removes $465,000 of costs but adds the $100,000 setup and $470,000 of running costs: $465,000 - $100,000 - $470,000 = -$105,000. A negative first year reflects the initial investment, which is common in infrastructure changes.

From the second year only the running costs count: $465,000 - $470,000 = -$5,000 a year, a return of about -1.06% on those running costs. With these figures the migration never pays back on direct costs, because running Kubernetes costs more than the migration removes. It breaks even only when the running costs fall below $465,000 a year. At $415,000, for example, the saving is $50,000 a year, and the $100,000 setup pays back in two years. Otherwise the case rests on the benefits below.

V. Considering Intangible Benefits

While not reflected in the immediate ROI, the benefits in agility, reduced time-to-market, increased uptime, and customer satisfaction can lead to improved revenues and reduced costs in other parts of the business over time. For example, a 20% reduction in time-to-market could potentially bring forward revenues, significantly improving the ROI. But, as these benefits are harder to quantify, they are often considered separately from the direct ROI calculation.

This illustrative example provides a concrete understanding of the financial calculations involved in a Kubernetes migration. Of course, the actual figures will depend on the specifics of each business and migration plan.

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Frequently Asked Questions

How do you calculate the ROI of Kubernetes migration?

Calculate total cost of ownership (TCO) for your current infrastructure — hardware, software licenses, storage, networking, and staff. Estimate Kubernetes migration costs (setup + ongoing). Subtract the post-migration annual costs, including what it costs to run Kubernetes, from today's TCO to get the annual saving. Divide the setup cost by that saving to get the payback time.

What are the typical costs of migrating to Kubernetes?

Setup costs depend on application complexity, number of services, and team training needs. Ongoing costs include cloud infrastructure, management tooling, and Kubernetes expertise. Open-source Kubernetes eliminates licensing fees, but operational costs remain. We help clients build accurate cost models before committing to migration.

How long does it take to break even after Kubernetes migration?

It depends on how much the migration removes and what running Kubernetes costs. The first year usually shows a net loss because of setup costs and running both platforms in parallel. After that, divide the setup cost by the yearly saving. If running Kubernetes costs more than the migration removes, as in the example above, it never pays back on direct costs, and the case rests on benefits such as faster deployments.

What hidden costs should you plan for in Kubernetes migration?

Teams often underestimate training costs, the productivity dip during the learning curve, and the cost of refactoring stateful applications for containerization. Budget for running parallel infrastructure during migration — you'll need both old and new systems running simultaneously.

Related Reading

• Future-Proofing Your IT Infrastructure with Fractional Kubernetes Services
• How Kubernetes can reduce infrastructure costs for businesses
• Migrating your Kubernetes app to AWS Lambda and the other way