Cost Benefit Analysis of Cloud Migration

When planning a cloud migration (of any scale), it is critical for every business to perform an in-depth cost-benefit analysis to understand:

• How their cloud migration spend compare against the potential benefits
• The percentage of ROI that the cloud migration project is likely to generate

In this article, we have listed all the components you need to consider and the exact formulas you can use to perform a proper cost-benefit analysis of cloud migration.

Parameters to Consider for a Cost Benefit Analysis

You must consider several key parameters to be able to perform a cloud migration cost benefit analysis. Here they are:

1. Cost of the Target Cloud’s License – The license cost of the target cloud platform is the first major expense to consider. If your company plans to integrate other third-party apps, consider the license costs of those apps as well.
2. Cost of Cloud Migration – Get started by calculating the potential cost of the cloud migration by including important factors, such as:
   • The cost of the cloud migration tool
   • The cost of training end users to use the target cloud platform

   Also, consider additional cloud migration expenses that may be applicable to your company, such as:

   • Your company may need to buy extra API calls to avoid rate limiting
   • Your company may need a specific tool customization
3. Benefits Anticipated from Migration – Factoring in the cloud migration benefits is equally important. Consider some of the core benefits from the migration according to your use case, such as:
   • Cost savings
   • Scalability (flexibility in upgrading licenses)
   • Improvements in productivity through AI integration and automation
   • Improved security and compliance

Steps to Perform a Cost Benefit Analysis

You need to calculate the core parameters first to be able to perform a cost benefit analysis of cloud migration.

1. Calculate the Total Cost

Add all the cost of the migration, including the cloud platform’s license cost, cost of using a migration tool, etc.

Formula to calculate the total migration cost: Total Cost = Primary Cost + Extra Cost + Long Term Cost

Long term cost is the cost of renewing cloud licenses annually. You can skip this parameter if you are unsure of it.

2. Calculate the Total Benefit

Break down the cloud migration benefits into two categories: tangible and non-tangible; tangible benefits being quantifiable numbers, e.g., cost savings, and non-tangible benefits being non-quantifiable metrics, such as user productivity.

Formula to calculate the total benefit: Total Benefit = Tangible Benefits + Non-Tangible Benefits

3. Calculate Net Benefit

Next, calculate the net benefit of the migration. If the net benefit is greater than zero, then the migration is financially feasible.

Formula to calculate the net benefit: Net Benefit = Total Cost – Total Benefit

4. Calculate the ROI

Lastly, it’s important to calculate the return on investment (ROI) from the migration to determine the value your company will get from the migration spend. It goes without saying that a high ROI indicates profitability from the migration spend (often in the long run).

Formula to calculate ROI: ROI (%) = (Net Benefits / Total Cost) x 100

You can further explore deep ROI calculation with our cloud migration ROI calculator.