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Ivinco Ltd.

Ivinco Ltd.

July 28, 2023 ・ Value

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.

So, the total ongoing costs would be $470,000 annually.

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 total expenditure post-migration would be $320,000 annually, leading to savings of $785,000 - $320,000 = $465,000 annually.

IV. Calculating the ROI

Given that the setup cost is $100,000 and the first year's ongoing cost is $470,000, the total cost in the first year is $570,000. The net benefit in the first year is the savings minus the total costs: $465,000 - $570,000 = -$105,000. The negative net benefit reflects an initial investment, which is quite common in infrastructure changes.

However, the ROI in the second year, when only ongoing costs are considered, would be ($465,000 - $470,000) / $470,000 * 100% = -1.06%. From the third year onwards, as the savings exceed the ongoing costs, the ROI becomes positive. This indicates that the break-even point for the investment is reached in the third year.

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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