Calculating the ROI on Cloud

Calculating the ROI on Cloud

Calculating the ROI on Cloud

IDC calls cloud computing “one of the most potentially transformative developments in the information technology world in the last 20 years.

Many companies have already chosen virtualization – generating a straightforward and easily measurable ROI through the deployment of basic applications such as email and collaboration. Assessing the ROI of further investments in private cloud and PaaS, for example, is more complex and the ROI is often unclear. This can raise a roadblock for further corporate investment in cloud. Additionally the recent economic recession has pressured corporate profits to cut technology spending and limited further investment in cloud. In spite of these roadblocks cloud computing will soon be a business imperative.

Before the ROI: The Cloud Assessment

Before actually calculating the ROI, companies must baseline the cost of their existing applications and determine suitability of current applications for cloud migration. This can be done in a variety of ways. At Persistent, we have developed a Cloud Assessment Tool which takes customers through the entire assessment and ROI process.

Figure 1: Showcasing Persistent’s Cloud Assessment Framework

This can be done in a variety of ways. In order to calculate ROI, one must:

1) Identify Deployed Applications in the Enterprise
2) Analyze Workloads and Business Heuristics for Each Application
3) Develop a Recommended Cloud Strategy (On-premise vs. Cloud)

It is important to understand how the overall ROI can be achieved even when spending more upfront. It is only after the Cloud assessment is done that the ROI of moving to the cloud can be calculated.

Cloud ROI is composed of 3 major benefit areas:

  • Cost Reduction
  • Productivity Enhancement
  • Revenue Transformation

Cost Savings from Cloud

After categorizing an enterprise’s applications and base-lining its costs, companies can estimate their potential cost savings. It is possible to generate a ROI of 50% for a Tier 1 workload and a ROI of 70% for a Tier 3 workload. For example, the following are the results for a recent ERP migration to a public/private cloud performed at Persistent.

  • Reduce number of servers from 82 to 11
  • Reduce number of racks from 11 to 1
  • Generate 50% CAPEX savings
  • Generate 80% OPEX savings

Labor

Labor costs offer the best direct savings for every dollar of IT budget shifted into the cloud. A typical global enterprise spends 67% of its IT budget on labor, including 40% on application development and maintenance. In the Cloud, labor assigned to manage infrastructure can be significantly reduced if not eliminated altogether as applications in the cloud run on an automated platform. The typical person to server ratio in an enterprise can be improved from 1:5 to 1:10 or even 1:15 as a result.

Software

Software expenditures make up 16%, the next largest piece of a global enterprise IT budget; including application licensing and maintenance fees at 12% and infrastructure software at 4%. In the cloud, software can be accessed at any station, by any user, independent of individual licenses, and is charged on a per-image basis. This reduces overall software licensing and maintenance costs as companies pay only for what they use, turning a previously fixed cost into a variable cost that can be targeted for optimization.

Hosting

The typical global enterprise spends 8% of its IT budget on hosting, including 4% on application servers, 3% on facilities, and 1% on storage. That spending increases as the business becomes more complex and requires more powerful hosting infrastructure. Compared to the on-premises model, hosting in the cloud can produce returns in three areas:

  • CAPEX vs. OPEX: The biggest difficulty as well as cost savings associated with hosting on premises is that all of the organization’s hosting costs are capital expenditures. Here the Cloud return potential is clear: in the Cloud, costs are completely operational (OPEX) and pay-as-you- go.
  • Asset Utilization: Transitioning from an on-premises model to a cloud-based model allows enterprises to more efficiently utilize the IT infrastructure available on-site.When an organization is approaching full capacity with its existing hardware, the decision to move to the cloud can mean millions of dollars in cost avoidance.
  • Power and Cooling: In allowing the organization to use its existing infrastructure more efficiently, and in reducing the need for new capacity, the cloud model can significantly reduce the costs associated with powering and cooling an enterprise’s data center.

Part 2 – The Cost of Cloud… 

Article By Shreekanth Joshi

Associate Vice President, Practice Head for SaaS and Cloud /Persistent Systems

About CloudTweaks

Established in 2009, CloudTweaks is recognized as one of the leading authorities in connected technology information and services.

We embrace and instill thought leadership insights, relevant and timely news related stories, unbiased benchmark reporting as well as offer green/cleantech learning and consultive services around the world.

Our vision is to create awareness and to help find innovative ways to connect our planet in a positive eco-friendly manner.

In the meantime, you may connect with CloudTweaks by following and sharing our resources.

View All Articles

Sorry, comments are closed for this post.

Conquering Disease with Artificial Intelligence and IBM Watson

Conquering Disease with Artificial Intelligence and IBM Watson

Artificial Intelligence and IBM Watson Artificial Intelligence, or AI, is growing increasingly pervasive in today’s modern world. Perhaps the most publicized and recognizable application of AI to date, IBM’s Jeopardy-winning computer, Watson, is now being used to help cure cancer. IBM announced the development of Watson for Genomics on Wednesday at the National Cancer Moonshot…

The Fundamentals of Predictive Analysis

The Fundamentals of Predictive Analysis

Predictive Analysis  Article sponsored by SAS Software and Big Data Forum Analytics is playing an increasingly important role in our lives thanks in large part to internet of things (IoT) developments and a greater appreciation of Big Data. With solutions that range across business productivity, health care, individual and national security, new insights are regularly…

Clouding Around With The Unicorns

Clouding Around With The Unicorns

The Social Unicorn Early investors and technology consumers alike love the poignantly named “Unicorn” companies, or private startups that reach the $1 billion valuation. The most recent unicorn spotting is social media game-changer Snapchat, which was recently valued at $16 billion. According to a recent infographic from Alexa discovered via Adweek, Snapchat also proves to…

Achieving Network Security In The IoT

Achieving Network Security In The IoT

Security In The IoT The network security market is experiencing a pressing and transformative change, especially around access control and orchestration. Although it has been mature for decades, the network security market had to transform rapidly with the advent of the BYOD trend and emergence of the cloud, which swept enterprises a few years ago.…

Increasing Efficiency and Reducing Cost with Managed Printing Services

Increasing Efficiency and Reducing Cost with Managed Printing Services

Managed Printing Services This is a sponsored post written on behalf of HP MPS.  Today’s business leaders recognize the value of shared services, significantly providing a wide range of enterprises with the sophisticated tools they need to compete with big business, while additionally driving costs down. But an area often overlooked in our tech-savvy world…

Disaster Recovery – A Thing Of The Past!

Disaster Recovery – A Thing Of The Past!

Disaster Recovery  Ok, ok – I understand most of you are saying disaster recovery (DR) is still a critical aspect of running any type of operations. After all – we need to secure our future operations in case of disaster. Sure – that is still the case but things are changing – fast. There are…

The Questions of Privacy In The Internet of Things Revolution

The Questions of Privacy In The Internet of Things Revolution

Privacy in the Internet of Things Revolution The Internet of Things (IoT) has been promising a lot to consumers for a few years and now we’re really starting to see some of the big ideas come to fruition, which means an ever-growing conversation around data security and privacy. Big data comes with big responsibilities and…

The Big Data Movement Gets Bigger

The Big Data Movement Gets Bigger

The Big Data Movement In recent years, Big Data and Cloud relations have been growing steadily. And while there have been many questions raised around how best to use the information being gathered, there is no question that there is a real future between the two. The growing importance of Big Data Scientists and the…

15 Cloud Data Performance Monitoring Companies

15 Cloud Data Performance Monitoring Companies

Cloud Data Performance Monitoring Companies (Updated: Originally Published Feb 9th, 2015) We have decided to put together a small list of some of our favorite cloud performance monitoring services. In this day and age it is extremely important to stay on top of critical issues as they arise. These services will accompany you in monitoring…

Why Hybrid Cloud Delivers Better Business Agility

Why Hybrid Cloud Delivers Better Business Agility

Why Hybrid Cloud Delivers Better Business Agility A CIO friend of mine once told me that a hybrid cloud model enables him to “own the base, rent the spike” when it comes to unplanned events. Let’s face it – maintaining unused infrastructure for rare or random IT events is expensive and unnecessary in a cloud…

Infographic Introduction – Benefits of Cloud Computing

Infographic Introduction – Benefits of Cloud Computing

Benefits of Cloud Computing Based on Aberdeen Group’s Computer Intelligence Dataset, there are more than 1.6 billion permutations to choose from when it comes to cloud computing solutions. So what, on the face of it, appears to be pretty simple is actually both complex and dynamic regardless of whether you’re in the market for networking,…

5 Considerations You Need To Review Before Investing In Data Analytics

5 Considerations You Need To Review Before Investing In Data Analytics

Review Before Investing In Data Analytics Big data, when handled properly, can lead to big change. Companies in a wide variety of industries are partnering with data analytics companies to increase operational efficiency and make evidence-based business decisions. From Kraft Foods using business intelligence (BI) to cut customer satisfaction analysis time in half, to a…