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Cloud economics – different types of cost optimization techniques for SAP

Devendra Goyal
11 Mar 2022

Cloud economics plays a vital role in managing the costs, benefits, and the economic principles of cloud computing.

The etymology of the word economics can be traced back to the Greek word ‘oikos nomos’ meaning ‘household manager’. In the context of cloud computing, how do you run a metaphorical cloud “household”? Cloud economics plays a vital role in managing the costs, benefits, and the economic principles of cloud computing. The question is, what are the best ways to optimize the costs of cloud computing and obtain the greatest value for your organization?

With the onset of the pandemic, social distancing pushed employees and customers online, generating a demand for cloud solutions. Unfortunately cloud economics is still a grey area, making it challenging for businesses to consume cloud services cost effectively while consistently driving value. According to an IDG study well-managed cloud environments reduce operating budgets and drive new revenue, reducing IT operations overhead by 26%, which results in great ROI. Bad cloud economic decisions are sprung from a few blind spots along the way to do with operational costs, application performance, talent, and reskilling. Luckily there is a variety of techniques that businesses can employ to better manage their cloud ‘household’.

There are two foundational principles that need to be addressed as a first step towards improving the cost efficiency of cloud computing. Economies of scale help cloud providers lower long-term expenditures (CAPEX) and enable implementation of a pay-as-you-go pricing model. Large entities have a competitive advantage over smaller ones since the sheer size of these companies allows them to buy in bulk, increase managerial specialization and obtain lower-interest charges when borrowing from banks. All these sources optimize costs. Global reach also results in substantial savings. With servers located and accessed from anywhere in the world, companies can easily reduce labor cost.

Another way of optimizing costs is the practice of right sizing. Right sizing involves several small processes such as determining the hardware requirements, physical memory, CPU power and the I/O capacity. Right sizing SAP is simple with the help of a web-based tool called Quick Sizer which improves the sizing of SAP applications by making the process easier and faster. Different sizing methods in SAP include greenfield, brownfield and expert sizing.

Reserved instances (a discount billing concept) are being employed by market giants such as Amazon’s AWS and Microsoft’s Azure, for consistent workloads to optimize costs. Shutting down unused resources, auto-scaling, setting budgets, allocating costs, and choosing the right compute services are some of the actions taken as part of the reserved instances protocol.

Choosing the correct region is another significant factor to consider, to bring down the cost of operations. Different regions affect the latency, pricing, availability of machines and carbon footprints, so a strategic choice of region must be made to amplify savings. Furthermore, ramping up your business agility goes hand in hand with everything else – it is a major economic benefit of cloud economics. Deploying computing resources and applications at a faster rate and ramping up storage and computing power on demand is necessary allowing businesses to respond faster to market changes leading to faster revenue growth. Data transfer also play main role in cloud economics. Generally there is no charge on ingress data, they certainly cloud vendors charges it for egress and inter-region transfers. If data transfers can be measured and controlled by using monitoring mechanism, it helps in reducing the public cloud bills.

The migration of SAP from on-prem DC to public cloud reduces the total cost of ownership (TCO). Hardware is also a crucial element. Although often overlooked, it is a key component of an SAP system, comprising of servers, disk storage systems and network gear (routers, security firewalls) which all create the base layer of the SAP system. Investing in new hardware is a good idea as it is cheaper and more efficient ultimately resulting in a good ROI.  SAP also consists of a disaster recovery strategy (RPO) predicting how much data you can afford to lose in the case of a disaster which is useful when assessing your company’s finances and the possible risks.

Through automation, SAP2Cloud transformation can optimize the costs of your target cloud environment by quickly identifying the optimal SAP-certified virtual machines (VMs), increasing the speed and efficiency of migration without disruption. Capgemini’s cloud migration assistant an advanced prebuilt accelerator, analyzes existing CPU memory utilization and cloud parameters for any public cloud platform, enabling us to identify and propose the optimal VM for your SAP2Cloud transition. We can then recommend a target architecture for rightsizing, complete with migrations costs and timeframes.

All these cost optimizing techniques act as a gateway to your perfect cloud “household”. More and more data will be stored, managed, and analyzed in cloud. Organizations with a solid understanding of cloud economics will be in a better position to optimize costs and a well-designed cloud strategy is the optimal solution for cost reduction.


Devendra Goyal
Head – Global SAP2Cloud Offer & SAP2Cloud Transformation