Because every organization's cloud environment is unique, there is no simple set of steps that all businesses can follow to calculate cloud TCO. Nevertheless, the process usually boils down to the following.

The first step is to decide on a period of time during which you'll track cloud costs to calculate the TCO. It should be long enough to cover routine fluctuations in workload utilization that could affect cost, such as seasonal increases in application use.

You should also avoid tracking cloud TCO during periods of unusual spending, such as the first month or two following cloud migration. During that period, your team is still in the process of setting up and configuring cloud workloads, so expenses during this time do not accurately reflect ongoing operating costs.

Next, measure the total CPU, memory, storage and data egress costs associated with operating cloud workloads over the period of time you've established for calculating TCO. If your workloads are already running in the cloud, you can use billing reports from your cloud provider to collect this data. If they're not yet in the cloud and you're trying to estimate cloud TCO to determine whether it makes sense to migrate, the cloud pricing calculators that cloud providers offer can help you predict the costs.

After calculating direct costs, move on to the more complex task of assessing indirect costs associated with using the cloud, such as personnel costs and the cost of software tools and services.

As noted above, these costs tend to be more challenging to quantify because not all personnel and software tool costs are necessarily linked entirely to cloud spending. Nonetheless, it's possible to gain an accurate estimate of the portion of spending in these categories that is linked to the cloud.

For instance, if the average IT technician spends 60% of their time on work related to cloud management, and their total cost to the business (including salary, benefits and payroll taxes) is $150,000, then the total staffing costs that factor into cloud TCO are equal to $90,000 (the product of $150,000 and 0.6) multiplied by the total number of IT staff.

In addition to the cost of operating workloads once they're in the cloud, migrating them to the cloud in the first place comes with its own costs. These can vary depending on the method chosen, but they often include costs such as paying software developers to refactor applications as part of the migration, buying software tools to assist in cloud migration and working with third-party service providers to help plan and execute the migration.

Although most of these are one-time costs, you should factor them into cloud TCO because you can't use the cloud if you don't migrate to it in the first place. The exception is businesses that were born in the cloud age and never deployed workloads on-premises.

If you expect your cloud workloads to change in scale over time in response to needs like a growing user base, factor that growth rate into your cloud TCO. For instance, if you expect to add 20% more users every year and you'll need to scale up cloud workloads by an equivalent amount to support those users, assume that your total cloud operating costs will also increase by 20%.

With the above data in place, you're ready to calculate a cloud TCO number. The calculation should be equivalent to the following:

[(Cloud infrastructure costs) + (indirect cloud costs) + (cloud migration costs)] x estimated cloud growth rate x timeframe

The result is your cloud TCO for that period of time.