Strategic CIO // IT Strategy
News
1/13/2011
07:42 PM
Connect Directly
LinkedIn
Twitter
RSS
E-Mail
50%
50%

11 Steps To Calculate Cloud ROI

Migrating to the cloud for pure cost savings? Be honest about the true budget picture--positive or negative.

InformationWeek Green - January 17, 2011 InformationWeek Green
Download the entire Jan. 17, 2011, issue of InformationWeek, distributed in an all-digital format as part of our Green Initiative
(Registration required.)
We will plant a tree
for each of the first 5,000 downloads.

6 Ways To Fail The cloud computing hype machine is in full throttle. Even some rational CIOs we talk with predict that 20% of companies won't own their IT systems in five years. From their perspective, what better way to get off the hook for high capital costs and poor system performance than to outsource? It's the ultimate in blame avoidance.

We're not buying that rapid change rate, but two things are clear from our annual InformationWeek Analytics State of Cloud Computing Survey and from the targeted Cloud ROI Survey we fielded in April. First, the movement toward adopting some level of cloud services is close to achieving critical mass. Second, there are gaps in how we're architecting, budgeting for, and engineering the services we buy.

Think your company isn't jumping in blindly? Don't be so sure.

Forty-three percent of our 607 respondents are either using or plan to use some type of cloud service within 12 months. That's up from 27% in our last survey. However, 71% say they have no idea whether that "cheap" cloud service will end up costing a fortune. They're making cloud decisions in a vacuum, bypassing the review that would, as a matter of course, happen for an internal IT initiative. Yes, we're talking about the checklist gauntlet: How much does it cost up front? How much to maintain? How does it connect? How do we monitor it? How do we back it up? How do we secure it? How does it impact everything else? What do we do if it goes down?

"The driving factor for many cloud decisions is cash flow," says Jeff Solomon, head of the emerging technology group at CPA firm Levine, Katz, and Solomon. "For many industries, the capital limitations are so dire they're willing to move to the cloud based on a cash flow comparison alone. They simply aren't doing a proper ROI analysis."

The up-front cost differences between cloud and in-house are so dramatic on rudimentary analysis that businesses are lulled into feeling savings are inevitable; it's the "truthiness" factor, if you will.

As we discuss in more depth in our full 2011 State of Cloud Computing report, it's not that we don't like the cloud; in many cases, providers can deliver a superior-quality service for less money. That said, you don't have to look back too far to see an example of how poor financial justifications hamper long-term initiatives. A case in point is virtualization. The 2006 pitches to CFOs were based on a pure hardware vs. virtual platform analysis and left out the cost of staff retraining and systems management software. And let's be honest: Those omissions weren't just because neither area was fully developed yet. Including them would have weakened the savings argument.

Flash forward to 2011, and many companies are struggling to manage complex mixed physical and virtual data centers because they lack the funds to get the management tools and staff training they need. Integrating cloud services into your enterprise has an even more knotty set of challenges. Simply comparing the recurring monthly operating expenditures vs. capital expenditures with some net present value thrown in for good measure will bite you in the long run.

To read the rest of the article,
Download the Jan. 17, 2011 issue of InformationWeek

PLUS: Cloud ROI Worksheet

Become an InformationWeek Analytics subscriber and get our full report on the cloud in 2011. This report includes 37 pages of action-oriented analysis, packed with 17 charts. What you'll find:
  • 7 areas that must be included in your cloud-usage policy
  • Special section on calculating cloud ROI, including a customizable worksheet
Get This And All Our Reports


Comment  | 
Print  | 
More Insights
Transformative CIOs Organize for Success
Transformative CIOs Organize for Success
Trying to meet today’s business technology needs with yesterday’s IT organizational structure is like driving a Model T at the Indy 500. Time for a reset.
Register for InformationWeek Newsletters
White Papers
Current Issue
InformationWeek - September 2, 2014
Avoiding audits and vendor fines isn't enough. Take control of licensing to exact deeper software discounts and match purchasing to actual employee needs.
Flash Poll
Video
Slideshows
Twitter Feed
InformationWeek Radio
Listen Now This InformationWeek
In in-depth look at InformationWeek's top stories for the preceding week.
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.