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Lower Costs a Promising Sign for Private Healthcare Cloud?

Research indicates private cloud models are overall more cost effective in large deployments than public cloud models.

By Elizabeth O'Dowd

New research points to decreasing total cost of ownership for private cloud solutions, perhaps removing a barrier to entry for health IT infrastructure.

Private healthcare cloud benefits.

Research conducted by 451 Research analyzed various cloud options and determined when organizations benefit financially by using private cloud deployments instead of public or managed cloud services. The research found that past a certain point, private cloud options become less expensive than public cloud or managed private cloud options for larger organizations.

Using VMware, Microsoft, and OpenStack as examples the research indicated that “because of the prevalence of suitably qualified administrators, commercial private cloud offerings such as VMware and Microsoft currently offer a lower TCO when labor efficiency is below 400 virtual machines managed per engineer. But where labor efficiency is greater than this, OpenStack becomes more financially attractive.”

The study Public vs Private Cloud Usage Costs came to a similar conclusion, stating the private cloud service model TCO was lower than a comparable public cloud service model. The study calculated the TCO of a private cloud installation over two years, taking into account the overall infrastructure cost and the operational and administrative expenses and concluded that economic benefits could be experienced in 2-3 years.

The study’s analysts stated that “these benefits can become even more evident in larger cloud installations in which case the economies of scale will significantly improve the hardware efficiency and consequently the investment on a private cloud will be amortized in a shorter period of time.”

Organizations with full control over their cloud infrastructure run a more cost effective infrastructure because commercial clouds often include fees to run large scale cloud deployments. These fees run high for large-scale deployments, making it more cost effective to hire private staff to manage and maintain a private cloud.

Private cloud deployments are more cost effective in the long run, especially for large scale deployments, but TCO is not the only factor to consider when deploying a cloud solution.

"Salaries and labor efficiency have a disproportionately large impact on pricing, so our analysis provides a true picture of total cost of ownership, beyond the technology costs," said Dr. Owen Rogers, Research Director of the Digital Economics Unit at 451 Research. "But as with any IT purchasing decision, cloud buyers need to look beyond the pricing and evaluate all the risks.”

Dr. Rogers cites long term vendor lock-in as a risk but other, more technical risks are common problems organizations must be aware of when deploying a private cloud service model. A Gartner poll conducted last year indicates the following items as common private cloud problems:

  • Focusing on the wrong benefits: Focusing on cost saving and not gaining the agility an organization requires from a cloud solution.
  • Doing too little: Treating each cloud deployment as the same and not adjusting for virtualization or other cloud services.
  • Doing too much: Optimizing for everything and wasting resources better used elsewhere.
  • Failure to change the operational model: Failing to adjust to the new cloud model by retraining staff and restructuring operations accordingly.
  • Failure to change the funding model: Spending money in the wrong places and failure to realize the correct financial needs of a private cloud.
  • Using the wrong technologies: Using unnecessary or incorrect equipment to support the private cloud.

While the price tag may be more appealing, private cloud installations take a skilled professional to manage. The cloud administrator's salary is included in the TCO analysis in favor of private cloud, but hiring the wrong cloud administrator will lead to incorrect distribution of infrastructure resources. Organizations can potentially lose money on wasted resources or spend more if resources are under too much strain.

Cloud technology continues to gain traction in health IT despite challenges faced when deploying cloud technology.  Health IT budgets are on the rise but healthcare organizations have more than just cloud computing to think about for their technology infrastructure. CEHRT and analytics are also IT infrastructure priorities for many healthcare organizations. Regulatory restrictions and incentives such as HIPAA and MACRA also take a toll on IT budgets and are often prioritized above other health IT initiatives.

Saving on health IT infrastructure cost is appealing for most organizations, but if an organization is not prepared of capable of managing and administering their entire cloud deployment, the financial benefits of private cloud infrastructure are nullified.

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