01 Apr MANAGED APPLICATIONS VS TRADITIONAL IT MANAGEMENT
With the emergence of digital in today’s environment, applications and IT infrastructure are critical for businesses to function effectively. However, such systems are often not manageable in-house at all, taking a lot of time and money and being complex. In this article, we evaluate the cost benefits of using managed applications instead of traditional on-premises IT management.
IT management with traditional systems is handling systems on-premises and with an in-house IT team, while managed apps are software and services that are hosted and managed by a third-party provider. However, many companies have difficulty hiring all the expertise and resources to do everything on their own as applications and infrastructure become more and more complex. Managed services offer such large cost and capability advantages here.
Here at Amra and Elma, we’ll compare factors such as upfront costs, ongoing fees, staffing requirements, scalability, security, and more. Businesses can evaluate the monetary and operational benefits of a switch from managed services and decide whether or not it is something that makes sense for their organization. It is aimed at tech-savvy readers, such as IT professionals, business owners, and startup founders, who would want to know the tradeoffs of cost vs reward of various IT management approaches.
The Cost Benefits of Using Managed Applications vs Traditional IT Management
Using Managed Applications vs Traditional IT Management – Upfront Costs
The first difference between managed applications and traditional on-site IT is the upfront investment. With managed services, you avoid substantial capital expenditures associated with on-premises solutions. For more information, visit website.
It can cost hundreds of thousands or even millions of dollars to buy all the servers, data centers, networking equipment and similar hardware, even for average small to medium businesses. Massive economies of scale of the infrastructure costs are spread across thousands of customers, making it possible to manage application providers. This takes away the high initial financial barrier for companies to adopt new systems and services.
In addition to hardware expenses, installing and configuring traditional IT environments requires upfront labor. Businesses need to pay IT staff to set up networks, servers, user permissions, applications, and data integrations when bringing systems in-house. This complex process can take weeks or longer, depending on the scope.
With managed applications, customers avoid sizable capital outlays for both equipment and deployment labor. The subscription-based services allow you to start using systems almost instantly without large up-front costs.
Using Managed Applications vs Traditional IT Management – Ongoing Operating Costs
In addition to lower initial investments, managed services provide advantages in regular operating costs over time. We analyze factors like staffing, maintenance, upgrades, overhead, disaster recovery, and more in the ongoing cost structure.
Staffing
Businesses have to pay for big tech teams to monitor and manage their environments for traditional oon-premisesIT infrastructure. You need experts in systems administration, database architecture, DevOps and networking people, managers and support reps.
These specialized skill sets are expensive and tough to recruit. Salaries for the average systems administrator are over $88,000 a year. Larger companies require entire departments of IT staff, creating high fixed labor costs.
With managed applications, customers can reduce IT headcount since many administrative tasks are handled by the service provider. You avoid around-the-clock coverage for server monitoring, patch management, backups, infrastructure fixes, and support issues. Leaner tech teams focusing on strategic initiatives rather than maintenance are possible.
Hardware Maintenance and Upgrades
On-site traditional infrastructure needs ongoing capital funds to continue to perform and stay in place. Periodically, server components such as CPUs, storage, RAM, and networking equipment require updating. In addition, upgrades over 5-10-year lifecycles are also required for data center cooling and power systems.
Without refresh investments, legacy hardware causes reliability, security, and compliance problems. Statistically, the typical server has a 7-year lifespan before performance declines. However, replacement costs quickly add up, with a single server priced between $5,000 and $15,000. Datacenter refreshes easily cost millions.
Managed service providers continually evolve infrastructure as part of monthly subscriptions. This prevents customers from bearing upgrade expenses down the road. Automatic inclusion of hardware refreshes creates financial predictability.
Facilities and Energy
Housing enterprise IT infrastructure on-premises leads to sizable facilities and energy costs from data centers and server rooms. Heating, cooling, ventilation, backup power, and physical security require supporting electrical, mechanical, and construction systems.
While data center build-outs are expensive, even small server closets need dedicated power and cooling infrastructure. The facilities costs compound as equipment expands. The average cost of building a data center is $600-$1100 per square foot, with additional electricity demands of up to $200 per square foot annually.
Managed infrastructure shifts this facility’s burden from customers to service providers. StoreWeb, AWS, and other cloud vendors operate global data center networks, realizing greater economies of scale. Customers avoid the costs of their facilities through the subscription model.
Disaster Recovery
Companies managing their infrastructure spend a lot of money recovering from data loss, system outages, natural disasters and ransomware. Traditional disaster recovery has standby data centers redundant hardware and is highly networked to minimize downtime. There is a great need to think through what to do and how to do it in order to successfully respond to crises such as severe weather and cyber attacks.
Rather than an added cost, disaster recovery is architected into the managed service providers’ platforms by default. Distributed global networks take the place of cloud vendors since they eliminate single points of failure. They come with built-in redundancy capabilities and an auto-failover that make enterprise-level business continuity possible at small business prices.
Disaster recovery becomes less expensive as more customers share infrastructure through cloud platform models. Cost efficiencies simply do not allow for the replication of resilience for single companies’ data centers.
Administrative Overhead
Maintaining traditional on-premises infrastructure also involves substantial indirect overheads beyond the hardware and staffing. Various software licenses, vendor contracts, regulatory compliance, change management processes, and training costs add up.
Administering security patches, auditing configurations, and documenting IT architecture, all divert focus from strategic initiatives that boost efficiency and growth. Because managed service providers consolidate resources across clients, they deliver solutions without passing excessive administrative burdens to customers.
Scalability
Traditional on-premises IT infrastructure faces major barriers to scaling up as business needs evolve. Capacity planning to handle usage spikes and growth up requires front overprovisioning. However, both underestimating and overestimating future requirements cause problems.
Undersizing local infrastructure leads to performance slowdowns when demand exceeds capacity. Meanwhile, overprovisioning wastes capital on unused resources that could be allocated elsewhere. Most companies lack the perfect foresight to size on-premise capacity optimally.
Managed applications built on cloud infrastructure allow businesses to scale seamlessly without overprovisioning local resources. Le services like AWS Auto Scaling let workloads expand and contract automatically based on usage. This elasticity matches supply to actual demand rather than forecasts. Automation and flexibility boost productivity through greater uptime and speed.
Security
Maintaining a strong cybersecurity posture across applications and infrastructure represents a rising pain point for companies managing their IT. Data breaches can cause massive financial and reputational damage. However, securing environments end-to-end requires advanced tools and specialized staff.
Traditional firewalls and antivirus software lack visibility into increasingly sophisticated threats. Monitoring threat intelligence across networks, enforcing policy and access controls, patching vulnerabilities, and managing encryption all stretch limited security teams.
Leading managed application vendors employ world-class cybersecurity experts focused exclusively on data and system protection. Multi-layered controls, AI-powered threat detection, and rapid remediation capabilities exceed what typical internal IT departments can achieve. By preventing breaches, customers avoid devastating recovery costs down the road.
Compliance
Similar to security, compliance burdens grow exponentially for companies managing their infrastructure. Data privacy regulations like GDPR and CCPA, along with industry standards like PCI DSS, HIPAA, and SOX, create overlapping audit demands.
Traditional IT management struggles to align infrastructure, policies, and reporting with complex regulatory obligations. This compliance overhead diverts from software focus development, which differentiates the business. Non-compliance also risks legal fines of upwards of 4% of global revenue.
Top-managed application providers both ensure underlying infrastructure complies with major regulations and publish independent audit reports. Customers can validate that provider controls meet necessary data standards. Shifting compliance ownership reduces risk, manual reporting, and opportunity costs of misdirected resources.
Using Managed Applications vs Traditional IT Management – Drawbacks of Managed Applications
While this analysis focuses on the many cost efficiencies of managed vs. traditional IT, the outsourced approach also comes with tradeoffs. Understanding the compromises involved allows businesses to make an informed decision about the best IT strategy.
Customizationations Limit
The biggest drawback of managed applications is less control over customizing infrastructure to meet unique business needs. While vendors offer some configuration options, customers cannot modify underlying software or hardware. Companies reliant on highly customized legacy environments may find it difficult to transition to standardized managed applications.
Migration Complexity
Data migration is a part of the transition of traditional on-premises infrastructure to managed cloud platforms. Despite this, it can be difficult to build integrations with legacy systems, and complexity vendors generally provide tools to import the databases. The migration effort for larger enterprises may take 12 to 18 months and will require IT resources and temporary duplication of systems.
Vendor Lock-In
Customers tend to be concerned with being locked into the vendor when adopting managed cloud app solutions. Technically, solutions can integrate with alternatives, but business processes are coupled with a specific platform. Consequently, the switching costs increase over time. However, as standards solidify, portability over vendors improves somewhat.
Availability Dependencies
If internet connectivity goes down, on-prem infrastructure will still be accessible, whereas managed applications hosted in the cloud may go down during ISP or vendor service disruptions. When external issues outside a company’s control block access, users feel frustrated. Uptime is greater than 99.9% for most leading services, but some dependency risk exists.
Using Managed Applications vs Traditional IT Management – Is it Worth Switching? Cost-Benefit Analysis
A cost-benefit analysis is needed when moving from legacy IT management to managed applications. Capex plus opex (including strategic impact and procedural changes) equals the total cost of ownership (TCO). Companies should look at this to see how beneficial a completely new system will be for their business.
Managed applications are the right choice for the majority of small or mid-sized businesses that lack infrastructure, as they require less upfront investment and staffing requirements. Operational efficiencies may not be enough to overcome the incumbent platforms that are still suitable for business needs. Still, for environments that are complex and age-old but are in the process of being modernized, managed services do deserve serious consideration.
We developed a sample cost analysis model below for a 200-employee company currently managing applications on-premises. IT leadership is debating whether migrating to a managed services model would achieve enough savings and operational benefits to justify the undertaking.
| Cost Category | Traditional On-Premises | Managed Applications | Difference |
| Initial Capital Expenses | |||
| Server Hardware (incl. redundancy) | $180,000 | $0 | -$180,000 |
| Network Infrastructure | $85,000 | $25,000 | -$60,000 |
| Software Licenses (upfront) | $145,000 | $0 | -$145,000 |
| Implementation & Migration | $60,000 | $120,000 | +$60,000 |
| Recurring Expenses (Annual) | |||
| Software Subscription/Licensing | $65,000 | $168,000 | +$103,000 |
| IT Staffing (2 FT vs. 0.5 FT) | $210,000 | $52,500 | -$157,500 |
| Managed Services Fees | $0 | $96,000 | +$96,000 |
| Maintenance & Support | $48,000 | $12,000 | -$36,000 |
| Power & Cooling | $18,000 | $0 | -$18,000 |
| Datacenter/Rack Space | $24,000 | $0 | -$24,000 |
| Backup & Disaster Recovery | $36,000 | $14,400 | -$21,600 |
| Security & Compliance | $42,000 | $30,000 | -$12,000 |
| 3-Year Total Cost of Ownership | $1,191,000 | $827,700 | -$363,300 |
| Average Annual Cost | $397,000 | $275,900 | -$121,100 |
However, one can see that managed applications have approximately a 30% decrease in TCO compared to traditional IT management (infrastructure and staffing savings) in this comparison. Additionally, automation and the efficient use of resources help increase productivity.
For companies managing 100 or fewer employees, the TCO differential expands even further since base infrastructure and staffing costs exceed business requirements. Shared cloud resources better align with usage needs.
The analysis will shift to larger enterprises with thousands of employees. Economies of scale for security, compliance, disaster recovery, and private data centers may drive different conclusions. Companies managing very sensitive data still often resist cloud migrations.
On balance, though, most small and mid-sized organizations aim to achieve hard cost reductions along with technology improvements by adopting managed applications. The subscription-based services allow businesses to access enterprise-grade capabilities without enterprise-sized teams or capital investments.
Using Managed Applications vs Traditional IT Management – Conclusion
This article reviewed the cost structure tradeoffs between traditional on-premises IT management and managed cloud applications. While both approaches have upsides and downsides, the flexibility, automation, and economies of scale enabled by managed services provide advantages for many companies.
By eliminating substantial infrastructure expenditures, facilities costs, and specialized staffing needs, managed applications allow businesses to focus investment on strategic software customization and user-focused development. Savings realized from avoiding undifferentiated infrastructure maintenance can fund innovation in the applications themselves.
Understanding the quantitative cost analysis along with qualitative factors allows tech leaders to determine the best IT posture for their business. For companies with limited legacy commitments to manage infrastructure,d application providers offer faster, more scalable, and more affordable pathways to modernization. But even complex organizations stand to benefit from targeted migrations to cloud-based architectures.
Hopefully, this overview of cost considerations will assist executives and IT professionals in evaluating future IT management strategies. Please reach out to any of our analysis Experts with questions. Specializes in tailoring cost modeling and managing transition plans to companies’ unique needs and existing environments. With the right and can transform information planning, businesses IT from cost a center to a strategic asset powering efficiency and growth.