Cloud Economics 101 for Public Sector Organisations

Public sector organisations are feeling the pinch. They’re facing uncertain futures and, clampdowns across all areas of spending, which is putting a strain on resources and affecting the services they provide for their communities.  

With stricter budget controls, many public sector IT leaders fear spending on new technology. But, as a result, they are missing out on opportunities that, in this day and age, they simply can’t afford to pass up on. Tied with ever-evolving cybersecurity threats towards the public sector, the risk of doing nothing is growing. But you’re probably thinking, what has this got to do with cloud technology?  

With the fear of spending, the increase in security threats and let’s not forget, the increasing costs of on-premises infrastructure like VMWare, a balance needs to be found. The answer to all these issues? Cloud technology. Let’s dive into Cloud Economics 101 so that you can understand the benefits, costs and principles of cloud technology to help you find that balance.  

What is cloud economics? 

Simply put, cloud economics is the process of understanding the costs involved with ownership of cloud technology, the benefits of cloud technology over on-premises infrastructure, and ongoing cost optimisation strategies that will maximise your cloud return on investment. As a public sector IT leader, it can be tempting to hop straight into a digital transformation journey and assume the costs and benefits involved, but it’s not usually quite so black and white.  

So why is it important to consider cloud economics?

• It can help you align your cloud investment with business goals, which will help you budget and invest efficiently and make sure you are supporting your goals, like security compliance or streamlined operations.
• You can assess where you should start to enhance innovation by looking at the financial effects of different cloud services and can innovate within a cost-effective framework that empowers innovation.
• Public sector organisations can optimise their cloud spending and cloud resources, meaning you can start to find savings in cloud costs with services you may not be using, allowing you to reallocate resources to other cloud areas that can foster growth.
• A thorough cloud economics analysis helps make a business case for migrating from on-premises infrastructure to the cloud. A cost-benefit analysis can help you:
  • Curate a clear business case, including how to measure performance over time
  • Compare the risks and rewards associated with the cloud vs on-premises
  • Decide whether you want to move all components to the cloud, or only migrate some applications to the cloud

Overall, cloud economics is about understanding the financial implications of cloud adoption and optimising resource utilisation to achieve business objectives effectively and efficiently. There are a few areas of cloud economics to take a closer look at… 

Total Cost of Ownership

When it comes to cloud technology, the total cost of ownership (TCO) covers the costs incurred with adopting and operating cloud technology. Getting an accurate TCO for the cloud means evaluating the price differences between on-premises and cloud solutions, as well as the tangible benefits of each, to help you come to a decision.  

For a public sector organisation, IT costing is imperative and undertaking a sound TCO of your cloud solutions can make sure you are adopting technology that aligns with your objectives and budget constraints.  

Cloud solutions like Microsoft Azure enable public sector organisations to conduct comparative TCO analyses between different deployment options, such as on-premises infrastructure and cloud solutions. Azure’s TCO Calculator allows public sector organisations to input their current infrastructure costs and usage patterns and compare them with the projected costs of deploying equivalent workloads in Azure. This can help public sector organisations make informed decisions about the most cost-effective deployment options based on their specific requirements and budget constraints.  

Overall, the goal is to achieve a lower TCO compared to on-premises infrastructure, but it can also be about justifying a higher TCO by making sure the tangible benefits of cloud solutions are listed as well. 

CapEx vs OpEx 

Many public sector organisations are still paying for traditional on-premises IT infrastructure that requires upfront investment in hardware, software licenses and data centre facilities. Public sector organisations may face continued challenges in securing funding for capital expenditures, especially when budgets are limited, and on-premises infrastructure costs are rising.  

With the cloud, spending is often shifted from a Capital Expenditure (CapEx) model to Operational Expenditure (OpEx), meaning public sector organisations will pay for the cloud services on a recurring basis, typically monthly or annually, rather than in lump sums. This pay-as-you-go model aligns expenses with actual usage, providing greater financial flexibility and predictability. By moving to an OpEx model of spending, public sector organisations can redirect funds towards other strategic initiatives, such as improving service delivery, enhancing citizen engagement, or investing in innovation.  

OpEx-based cloud pricing also enables public sector organisations to better align IT spending with revenue streams and operational budgets. This flexibility allows public sector organisations to respond more effectively to budget constraints, economic fluctuations and unforeseen events without sacrificing service quality or performance.  

Pay-as-you-go model 

Shifting to an OpEx model unlocks the ability to operate on a pay-as-you-go model or subscription-based pricing model, meaning that you end up only paying for the resources that you need.  

For many public sector organisations that have limited budgets and are under pressure to optimise their spending while still delivering essential public services, a pay-as-you-model, much like Microsoft Azure’s, eliminates the need for large upfront investments in the future. This means it can help you to better manage your finances by avoiding over-provisioning of resources typically seen with legacy on-premises set-ups. 

Let’s also not forget the scalability and flexibility of cloud technology. For example, Azure’s pay-as-you-go model enables public sector organisations to scale their resources up and down depending on expected or unexpected demand. By leveraging this pay-as-you-go model, public sector organisations benefit from cost savings, increased cloud agility and scalability, while avoiding any unnecessary financial constraints that can come with on-premises infrastructure.  

Cost optimisation 

Cloud economics also involves optimising your cloud costs by selecting the right mix of cloud services and pricing options. By leveraging cost optimisation strategies and tools, public sector organisations can effectively manage their cloud expenses and maximise the value of their cloud investments.  

Within Microsoft Azure, there are several tools and services that can help you identify cost-saving opportunities.

• Azure offers a wide range of virtual machine (VM) types and sizes, allowing public sector organisations to match their workloads to the most cost-effective and performance-optimised configurations. Azure Advisor provides recommendations for rightsizing VMs based on historical data usage, helping public sector organisations identify over-provisioned or under-utilised instances and rightsize them to minimise costs while maintaining 
• Azure Cost Management and Billing provides insights into spending patterns and identifies opportunities for optimisation, such as consolidating underutilised resources, optimising storage usage, or leveraging serverless computer services like Azure Functions. It can also monitor and optimise cloud spending continuously, allowing public sector organisations to set budgets, configure alerts for cost overruns, and implement policies to enforce cost-saving measures.
• Azure Hybrid Benefit enables public sector organisations to apply existing on-premises Windows Server or SQL Server licenses to Azure VMs. This significantly reduces costs as you’ll be leveraging your on-premises investments in the cloud. 

Cloud cost optimisation is important for public sector organisations to ensure efficient use of resources, maintain financial accountability, improve operational efficiency, support innovation, manage risks and contribute to sustainability efforts. These benefits collectively enhance the organisation’s ability to serve the public effectively.  

Value-based pricing  

When looking at cloud economics, you need to go beyond just focusing on the costs and look at what value the cloud can bring to your public sector organisation. You should assess what strategic benefits you will gain with cloud adoption, such as its scalability and how it can help streamline operations and empower innovation.  

Let’s take a look at how Microsoft Azure can offer value… 

• Azure’s cloud services allow public sector organisations to adjust their infrastructure based on real-time needs. This flexibility supports the rapid development and deployment of new services or the scaling of existing ones without the delays associated with on-premises procurement and set-up
• Azure offers access to a wide range of innovative technologies like its Azure AI Studio and Azure Machine Learning. With these technologies at your fingertips, you can empower innovation and enhance your public services
• Azure’s robust analytics platforms, like Synapse Analytics and Power BI, can allow public sector organisations to make more data-driven decisions. For example, we often hear of smart city initiatives using data analytics to optimise traffic management, reduce energy consumption and improve public safety
• Azure supports various collaboration tools and platforms, such as Microsoft Teams and SharePoint, which can help facilitate improved communication and coordination between stakeholders and groups within public sector organisations. 

The values which Azure provides are limitless, but we wanted to demonstrate a few examples to show the effect of value-based pricing as part of cloud economics. By focusing on these values, public sector organisations not only reduce costs but also gain strategic advantages through enhanced agility, innovation and operational efficiency. These benefits ultimately translate into improved public services and better resource management.  

So, we’ve gone through some of the key principles of cloud economics, but what’s next?  

Many public sector organisations will have to create strategic business cases and follow strict guidelines when it comes to adopting new technology. There is no one-size-fits-all approach to public sector organisations, but we do know the final decision doesn’t just come down to the IT team.  

Quite often in public sector organisations, we see wider project teams making these big decisions. Led by the IT team, project teams are made of key stakeholders, like board directors, financial leaders, legal, and end users such as other departments and agencies within your organisation. By considering all of these principles and assessing cloud economics, you can help create a strong business case and demonstrate the financial implications and benefits of cloud adoption for your public sector organisation to each of these parties. 

By thoroughly assessing these cloud economic principles, you greatly increase the chances of getting your organisation’s stakeholders on board and quell any fears that they have about the costs involved in a cloud migration.  

What’s next?  

Understanding the costs involved with a cloud migration project can be complex, but you don’t have to do this alone. By engaging with a Cloud Managed Service Provider that has all the appropriate Microsoft Azure accreditations, together you can identify the value of an Azure adoption and lay the right foundations for a successful migration project.  

We offer Microsoft Solution Assessments which can help with cost modelling, target state planning, and discovering how much Microsoft funding you are eligible for. These assessments will also help you develop a clear Azure migration roadmap and business case that you can use to demonstrate the costs and value to your public sector stakeholders. Get in touch, and let’s get going.