What is the TCO pay off with a Cloud Managed Service Provider? | Itoc

What is the TCO pay off with a Cloud Managed Service Provider?

Written by What is the TCO pay off with a Cloud Managed Service Provider?, .

Posted October 25, 2018

Have you ever been curious to see if the costs associated with engaging a Cloud Managed Service Provider stack up?

It can be daunting looking at the contract to pay a recurring amount, for a set period of time, and not having all the data immediately at hand. You need to be sure the costs stack up and you are using your budget effectively!

This blog compares and contrasts the two main approaches to operating in the Cloud: the “Do It Yourself” (DIY) approach vs. engaging a Cloud Managed Services Provider (MSP).

Before we get started, make sure you know what services you’ll be getting from your MSP! They aren’t all the same! Need to evaluate a proposal? Check out our checklist on what to look for in your Managed Services Provider

For the purposes of examining the Total Cost of Ownership (TCO) of the two approaches (DIY vs MSP), I will group costs into the following high level categories and the explore each in turn:

  • Staff Costs
  • Operational Costs
  • Intangible Opportunity Costs

Staff Costs

Costs for a highly skilled team

The first (and most obvious) cost incurred by any business is the on-costs associated with employing staff (e.g. wages, superannuation, leave). These staff are needed to manage, operate, secure and enhance your environments.

Depending upon your environment and its associated nuances (i.e. complexity, requirements for specific domain knowledge, size of environment) you may find yourself needing a team of highly paid and specialised people. These staff, albeit a necessity, come with direct and indirect costs, of which I’m sure you’re well aware ;)

I won’t even mention recruitment costs or how you find and attract these people, but these are also factors which will greatly increase the TCO for a DIY approach.

Leave the heavy lifting to the MSP, so your staff drive business value

By engaging and partnering with a Cloud MSP the staffing requirements, costs and challenges for maintaining your environment can be transferred to your MSP. Under the MSP model you retain and attract staff who drive, develop and add business value (e.g. product development), and leave the undifferentiated heavy lifting (you know, the patching, maintenance and incident response etc.) to your MSP.

Minimise resource risk

Another key consideration is that under an MSP engagement, you’re partnering with a team to manage your environment. Compare and contrast this to a common DIY approach which has a much higher resourcing risk by relying on the knowledge, ability and availability of one or two people for business continuity.


Let’s consider a fictitious and very simplistic scenario where your business critical workload of 10 servers requires a minimum of 1 full-time resource to manage and maintain the status quo.

To resource this workload with 1 person you’re realistically looking at anything from $90,000 - $130,000 per year including super and on-costs such as payroll tax. This equates to $7,500 - $10,833.33 per month just to have someone show up in the office each day. This is a key figure to keep in mind when you’re looking at the price your MSP is quoting to look after that very same environment with a broader range of expertise.

Now consider the multiplication factor when you need more than one person to manage your environment...

Operational Costs

The second category is the operational costs associated with operating and maintaining your environment.

Supporting services

This covers factors such as infrastructure, configuration and general maintenance on “supporting services” such as monitoring, logging and anti-virus, not to mention general “weeding and feeding” of your environment.

Often these are not core to your business but are required for ongoing operation and maintenance of your environment. Under the DIY approach, these supporting services:

  1. Detract from the business value-add activities your staff could be focusing on
  2. Add additional (often recurring) expenditure for your business, such as:
    1. Software licenses
    2. Infrastructure costs
    3. Support packages (often at a cost/tier lower than an MSP can offer due to their scale).

The DIY approach requires your business to take on these additional costs (and distractions), which may be better spent on your core product or service offering.

Technical Debt

Another common occurrence is staff being time poor and unable to focus on, tune or maintain the internal DIY supporting services. This contributes to your TCO in the form of technical debt, often manifesting itself in out-of-date solutions, which aren’t fully configured or used - all while you are still paying for it.

Save operational costs with an MSP

Compare and contrast this to your MSP who uses these tools daily. They’re fully maintained and up to date (it’s in our best interests), we select the best tools in the marketplace for the job and have deep technical experience in applying them effectively. Due to the scale of an MSP, improvements and lessons learnt in one managed environment can come to bear at improving the management of your environment as well - I like to think of this as continuous improvements which you get from the partnership.

The MSP model often sees the cost for operating the tools used to manage your environment included in your agreement.What this translates to is costs which you’d normally need to pay for independently are included in the cost. Make sure to check this with your MSP and see what is included!!


Going back to our scenario (10 servers, 1 employee), to manage and secure your environment effectively you’d need to procure, install and maintain a number of tools. Costs for these tools can easily approach $500/month or more. For brevity, we will take server monitoring costs as a quick example, with common SaaS server monitoring = $25/server/month. With the 10 servers in our scenario, this equates to $250/month before you’ve configured alerts or instrumented your environment.

Next, comes out of hours pager systems, antivirus/malware, centralised logging, and remote access solutions etc. Do you also need to run infrastructure to operate these solutions? You can see how the Total Cost of Ownership of the DIY approach soon adds up.

Intangible Opportunity Costs

This third category is where I dig into a few of the intangible costs associated with the DIY approach.

Enable your team to focus on accelerating your business

Number 1 is the undifferentiated heavy lifting that your staff will need to do to maintain the status quo and keep your “supporting services” operational. What could your staff be doing instead which is adding business value and growing your company? Innovation? That new feature?

Why not refocus your team onto the higher value tasks? Focus on tasks which enable your business to accelerate, grow and succeed in the future. You do not have to run the same operational housekeeping systems as everyone else. Shed the weight. Feel the freedom!

Resource risk

What happens when your staff member goes on annual/sick/carer’s leave? Does it mean that all changes to your environment are put on hold.

What happens when your staff member leaves? Did they document that last infrastructure change and admin password?!

All of these changes take focus away from your core business and may have a direct impact on your revenue!

Depth of expertise with MSP

With an MSP, you have a dedicated team of people who know your environment and can assist with issues as they arrive. It’s also very common for businesses in partnership with their MSP to tap into the deep experience and knowledge that is available. Many environments are similar and odds are that we’ve seen and solved your issue before!


In summary, when evaluating if an MSP engagement is the best choice for your business, it certainly helps to consider the TCO of both the DIY and MSP approach. Armed with this knowledge, I believe it’s easy to see the business value an MSP can bring to bear within your business.

Make sure you evaluate your MSP and know the services you will be receiving from them. Just as your business is unique and specialised, so too are many MSPs. Download our checklist on what to look for in your MSP.

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