Global Analyst Insights by Rene Buest

Find your return on investment (ROI) of cloud computing

By on January 16, 2013 in Analysis with 0 Comments

Companies are encouraged to determine the value of any investment with the return on investment (ROI). For new technologies / concepts such as cloud computing this is not trivial, since there is currently a little to no experience. Startups are more unbiased, as they have no comparative figures with classical systems, established companies, however, are dependent on it.

Return on Investment

The purpose of the “return on investment” metric is to measure, per period, rates of return on money invested in an economic entity in order to decide whether or not to undertake an investment. ROI and related metrics provide a snapshot of profitability, adjusted for the size of the investment assets tied up in the enterprise. ROI is often compared to expected (or required) rates of return on money invested. Marketing decisions have obvious potential connection to the numerator of ROI (profits), but these same decisions often influence assets usage and capital requirements (for example, receivables and inventories).

Source: Wikipedia.org

How to determine the ROI of the cloud?

It’s not so easy to determine a ROI for something you can not judge really good or you actually not know, and above all has no numerical data. Thus, one should look for areas that reflect no hard numbers, but still demonstrate the value and benefits of cloud computing. This is about saving costs, optimizing processes, improving the agility and a practical profit from the use of cloud computing.

Saving costs

After ​​an overview of previously used applications and sorting them into classes, it’s time to filter out potential candidates, for which a change in the cloud can cut costs. One possible candidate is the ERP system, which could be migrated to a cloud environment. Based on the consolidation and virtualization thus the actual number of required servers and simultaneously the necessary racks are reduced.

It’s the same for companies that have an R & D department and want to minimize the hardware infrastructure of their laboratory. Savings can be found primarily in the development and maintenance of the applications and hardware environments. But also lower expenses for the installation of software reduces costs through the use of cloud-based applications and reduces the necessary budget. Another advantage: The cloud-based solutions can be deployed on any workstation using a web browser.

Enterprises who continue to host their infrastructure on-premise will notice quickly that operating a cloud infrastructure in-house, means large investments in own hardware and software. Hosting in the cloud means to transform fixed costs into variable costs. As a result of the pay as you go model, only the resources are calculated, which are actually used.

Due to small hurdles and little technical knowledge not even IT staff can use cloud computing to buy infrastructure and applications for the company. This leads to savings in working costs and know-how as well as installation and maintenance costs, compare total cost of ownership.

Process optimization and agility

Due to the on-demand model cloud applications help to optimize business processes by focussing on developing the knowledge and solutions. Companies are therefore more agile and can respond more quickly to market changes and identify new opportunities to grow.

When a company grows or changes, it requires more resources quick. This may take a few weeks to several months and also includes to train staff. All this means a stop for the business. Cloud computing enables the rapid provisioning of required resources and thus represents the scaling safely.

Cost does not always say much

The successful use of cloud computing is not always expressed in figures. Therefore, the ROI of cloud computing is best determined from the utility. Administrators and CIOs should obviously regard the values ​​that occur when using. You should for example ask what you can expect from the use of a particular service. On this basis further questions, based on the benefits, can be developed that do not focus on the financial side. Thus, for example, metrics are related to the visible benefits of a cloud service, it is able to deliver. Metrics could be:

  • How is it with the technical support and other services that are provided by the vendor?
  • Can savings be achieved?
  • How complicated is the billing process?
  • What is the ease of use of the service?
  • Is the dynamic use of the new service guaranteed?
  • How flexible is the new service in relation to changes and changing requirements?
  • How fast can the new cloud service be adapted and deployed?
  • What are the maintenance and upgrade costs as well as the downtime compared to the cloud service?
  • What is the impact on the company if services are refer from the cloud in the future?
  • What are the risks related to the business processes and data stored in the cloud?
  • Could the satisfaction of my employees be increased?
  • Has the agility and flexibility improved?

The ROI is important, but…

The return on investment is an important metric in a company, but you should not take the financial side as the only basis of the ROI. Particularly in cloud computing, the value and benefits of the services are not always reflected in the monetary field. And even if the metric is sometimes not tangible, the value that a cloud service provides for a company should not be ignored, and instead be carefully considered.

So, do you consider the better agility, flexibility and satisfaction of your employees while calculate the ROI of the cloud? No? But you should!

About the Author

About the Author: Rene Buest is Gartner Analyst covering Infrastructure Services & Digital Operations. Prior to that he was Director of Technology Research at Arago, Senior Analyst and Cloud Practice Lead at Crisp Research, Principal Analyst at New Age Disruption and member of the worldwide Gigaom Research Analyst Network. Rene is considered as top cloud computing analyst in Germany and one of the worldwide top analysts in this area. In addition, he is one of the world’s top cloud computing influencers and belongs to the top 100 cloud computing experts on Twitter and Google+. Since the mid-90s he is focused on the strategic use of information technology in businesses and the IT impact on our society as well as disruptive technologies. Rene Buest is the author of numerous professional technology articles. He regularly writes for well-known IT publications like Computerwoche, CIO Magazin, LANline as well as Silicon.de and is cited in German and international media – including New York Times, Forbes Magazin, Handelsblatt, Frankfurter Allgemeine Zeitung, Wirtschaftswoche, Computerwoche, CIO, Manager Magazin and Harvard Business Manager. Furthermore Rene Buest is speaker and participant of experts rounds. He is founder of CloudUser.de and writes about cloud computing, IT infrastructure, technologies, management and strategies. He holds a diploma in computer engineering from the Hochschule Bremen (Dipl.-Informatiker (FH)) as well as a M.Sc. in IT-Management and Information Systems from the FHDW Paderborn. .

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