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Why TCO Doesn’t {Quite} Work for Comparing On-Premise and Cloud-Enabled HPC

Total Cost of Ownership (TCO) is a powerful financial tool that allows you to understand the direct and indirect expenses related to an asset, such as your HPC system. Calculating the TCO for an on-premise HPC system is direct: add up all expenses related to your system and its management for the entirety of its deployment. But what happens when you’re interested in switching to cloud-enabled HPC? Can you confidently compare the cloud-enabled HPC system’s TCO with an on-premise HPC system’s TCO?

This question has been addressed by many different institutions.

Our view is simple: TCO is a poor financial tool for evaluating the value of cloud-enabled HPC. Comparing a system with a static environment against a dynamic environment creates an unreliable and misleading analysis. It is an apples to oranges comparison, and using TCO to assess cloud-enabled HPC attempts to make apple juice from oranges.

What is a static environment and how does it apply to my TCO analysis?

Static environments for TCO are used when you have set expense for a set return. For an on-premise system, you can get X amount of computing power for Y amount of dollars. This same relationship goes on for most expenses in the cost analysis of an on-premise HPC system until you reach a comprehensive TCO. There are some variable costs involved (fluctuation in software pricing, staffing, energy, unpredicted errors, etc.); however, margins can be used to monitor their influence on the TCO. Essentially, you end up with the general TCO analysis of X computing power = Y expenses ± margin of change. This is a great tool for comparing systems with little expense variations and known rewards that create a near-linear relationship. However, what happens when the computing power is nearly infinite, and the expenses are reactive, as is the case for cloud computing?

What is a dynamic environment and how does it apply to my TCO analysis?

A dynamic environment for a TCO analysis is a system where the expenses and rewards are not directly correlated, making them difficult to define and compare. In a cloud-enabled HPC system, you pay for computing power when you need it; there is little initial capital expenditure needed to use cloud-enabled HPC, when compared to on-premise HPC systems. In this environment, your expenses for HPC become less predictable and more reactive because they are generated from your computing demand. In addition, you are no longer constrained by a set limit of computing power, so your reward is extremely variable due to how much you utilize HPC. This scalability can heavily influence your HPC usage; especially if your current system is inhibiting your peak performance and potential Design of Experiment (DOE). The rewards of cloud computing beckon the question: if you have less restrictions on HPC, would you utilize it differently?

What happens when you use TCO to compare on-premise vs cloud-enabled HPC systems?

TCO is a tool that is helpful for static environments, but when you try to take the same static tool and apply it to a highly dynamic environment, it is misleading. For example, consider you want to calculate the TCO of an on-premise HPC system. First, you must predict your peak usage and utilization for a system that will be used for approximately 3 years. To manage all an organization’s requirements, trade offs are made between peak usage and the maintenance of high utilization.Then you must pay the massive initial capital expenditure to purchase all the hardware, software, and staff required to assemble and operate the system. Calculate all these expenses and you receive your TCO for a system that awards you limited computing power.

Now, try to use the same analysis of a cloud-enabled HPC system. Most take the projected peak computing power and average utilization and multiply it by the price to compute in their prospective cloud service provider. This is the first problem, you’re already treating both systems as if their rewards and expenses are equal. With cloud-enabled HPC systems, you have instant access to the latest hardware and software resources which means you are always utilizing the best infrastructure for your applications. In addition, your computing power becomes near-infinite meaning there is no reason to have a queue for running simulations, which increases your productivity. These innovations in the research and design process are essential to getting better products to market before competitors, and the inability to easily scale and upgrade resources for an on-premise HPC system can severely inhibit your ability to compete. The differences in rewards makes it hard to quantify the expenses associated with the aging on-premise HPC system’s effect on potential new workflows that can help you outcompete your competition.

When comparing HPC solution’s TCO, you must acknowledge the rewards provided by each solution, because the lack of a rewards should be reflected as an expense in the competitor’s TCO. For example, if your cloud computing solution provides no queue time, better computing performance, and new DOEs, but your on-premise solution doesn’t, then you must calculate the expenses of inefficiency correlated to the absence of rewards from the on-premise system. That is the only way to level the TCO with the corresponding rewards, but it proves extremely difficult to define exact numbers for each reward; henceforth, making TCO a misleading and inaccurate tool. Comparing the TCO and rewards of cloud-enabled and on-premise HPC systems is pointless because the tool does not address the reality of each system; one is static and requires massive investment to create limited computing power, and the other is agile and requires pay-as-you-go expenses for limitless computing power.

Determining the financial implications of incorporating cloud-enabled HPC into you HPC system can be difficult. Thankfully, Rescale has many specialists and confidential tools to help define the benefit of cloud-enabled HPC on your organization.

Come talk to us today.

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