Cost Modeling

When to use

• Estimating infrastructure costs before committing to an architecture
• Calculating 3-year TCO to compare two architectural approaches or vendors
• Deciding whether to build a capability in-house or buy an existing solution
• Comparing per-seat, usage-based, flat-rate, and hybrid pricing models for a tool
• Projecting ROI on a proposed investment with sensitivity analysis
• Modeling how costs will scale as the primary cost driver (users, transactions, data) grows
• Performing breakeven analysis for a migration or build-vs-buy decision

Core principles

1. Egress is always the surprise — model data transfer costs separately before everything else
2. 3-year horizon reveals the truth — build looks cheaper in year 1; maintenance changes that by year 3
3. Cost per unit, not total cost — if cost per user is rising, there is a scaling architecture problem
4. ROI needs a pessimistic scenario — if the investment goes negative under realistic downside assumptions, it is risky
5. Opportunity cost belongs in the model — time spent building is time not spent on revenue features

Reference Files

• references/estimation-tco-build-vs-buy.md — compute/storage/network/managed service cost estimation, 5-category 3-year TCO structure (license + infrastructure + operations + training + migration), build vs. buy decision criteria and 3-year quantification, and per-seat/usage-based/flat-rate/hybrid pricing model comparison
• references/roi-growth-breakeven.md — ROI formula and time-to-ROI calculation, sensitivity analysis (+/- 20% assumptions), linear/sublinear/superlinear cost growth modeling, cost-per-unit trending, cost optimization checkpoint thresholds, and breakeven crossover chart methodology for build-vs-buy and migration decisions