Global Analyst Insights by Rene Buest

Cloud Computing ROI: Costs not always say a lot

By on January 22, 2013 in Management @en with 0 Comments

How the return on investment (ROI) of cloud computing can be determined, I have described earlier in this article. In practice, however, it is usually not so easy to implement, and other values ​​should stay in the foreground.

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

The benefits face the costs

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?

Agility, flexibility and satisfaction face the costs

Consciously I advise not to look at the actual cost only when evaluating cloud computing. What’s the use anyhow, if an on-premise solution is, comparing to a cloud service, cheaper after five years, if one forget in this equation, that a company also have maintenance costs for updates, server hardware etc. within those five years. Sure, once I purchased a strong invest in my resources and use them over a long period, without renewing them, I’m going definitely cheaper than using a cloud model, where I pay monthly or annual contributions. However, what should be noted is that I am constantly hanging behind the current trends and above all never use the latest software versions. So, if I invest a large sum in initial software licenses and let my employees work six to seven years with outdated software versions, of course, I save in the long term. The situation is similar with hardware. But do I make my employees happy with that and in particular more productive? No!

Cloud computing optimizes all technology processes and improves efficiency. It also reduces access to resources and increases the ability to innovate. Employees can access information and applications more quickly, enabling them to analyze information summarily and make decisions immediately. A location-independent access to the data can also increase the productivity of each employee.

Developers ask for the on-demand provisioning of resources

This confirmation I got from a manager of a German DAX company who has built a private cloud to optimize and standardize the delivery process of internal resources (servers) for the developers. For years, developers have been forced to make use of a provisioning process for physical servers, which took forever. This meant that some projects were completed either with a delay or could not have been performed. With a workaround, which deviated from the standard process, an external service provider was brought on board, ready to put the virtual server within 5 days. However, the developers here depend on the provider’s software because it does not support the software stack of the DAX company. Consequence: A development process with poor-quality, as the software on the virtual servers was not compatible to the later Live platform.

By building a private cloud, this whole situation has now been resolved. Servers are now provided within 5 minutes. Since a company must fully invest in their own infrastructure resources for a private cloud, the ROI would be negative if one focuses only on the hard numbers.

Developers ask for the on-demand provisioning of resources. So it is with the DAX company and so it is with other companies. Just ask the developers. 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.

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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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