Actually, an own private cloud financially makes no sense?!

I was asked this question from a visitor at CeBIT after my lecture/ panel “Public vs. Private cloud” during the Webciety 2013. We then talked a little about this topic. His question was, why some companies decide for a private cloud despite of the massive investments, and how they measure these capital expenditures and justify it.

Private cloud is a huge financial effort

Who decides for the construction of a real private cloud should also aware that this means more than just build a terminal server. Cloud computing, even in the private cloud, means among other things self-service, scalability, resource pools, automation, granular billing and on-demand retrieval of resources. One basis of the cloud is virtualization. For the virtualization hardware is required, from which the virtual resources are created. In order to ensure a significant scalability and availability an investment in hardware is necessary. Other cost items are the software that provides the cloud-functionality and is responsible for the pooling of resources, the automatic on-demand provisioning, self-service, billing, etc. In addition, you need the staff with the appropriate knowledge, that builds, maintains and operates the cloud infrastructure. Means, you become your own cloud provider.

So, if we consider which financial expenditures have to be lifted in order to realize the characteristics of a private cloud, we soon come to the conclusion that a private cloud from a purely economic point of view does not make sense. Unless one pays no attention to the cost and want to make his business more agile in a very private setting and increase the satisfaction of his employees, without going into the dependence of a provider and dependent on its level of data protection.

The KPIs of the cloud ROI need to be expanded

The successful use of cloud computing can’t always be expressed in hard numbers. I wrote more about this in the article “Cloud Computing ROI: Costs not always say a lot“.

I purposely advise not only to look at the actual cost while the rating of cloud computing, but include other factors which a typical return on investment (ROI) does not know. Its KPIs (key performance indicators) only measure the financial input and the resulting output. In the private cloud, the output will always be negative, because no real added value is directly seen. Unless you define one for yourself. This has nothing to do with cheating, but is a logical conclusion, which results from the flexibility and agility of cloud computing.

One of these KPIs and for me one of the most crucial is “the employee satisfaction“. This tells us how happy your employees are with the use and deployment of the current IT infrastructure. I claim that this KPI is dark red in many companies. Otherwise, there is no such high desire for shadow IT.

By building a private cloud the provision of resources can be strongly accelerated. This allows you to deploy servers within 5 minutes instead of days or weeks. Developers ask for the on-demand provisioning of resources. Just ask them. Unfortunately the value, which states that a developer or employee works satisfied, never flows into the ROI. But it should. Because the agility, flexibility and satisfaction should play as large a role as the actual costs.

By Rene Buest

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 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 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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