Calculating the ROI on Cloud: The Cost of Cloud – Part 3

Continued from Part 2

The Cost of Cloud

Clearly, there is great return potential associated with Cloud-based model. However, transition to Cloud-based model from an on-premise model is not without cost.

  • Direct Ongoing Cloud Costs

While the cost savings associated with a cloud-based model over an on-premises model are clearly substantial, there are two areas where an IT organization will face new costs associated with Cloud: those associated with the Cloud platform (~5%) and those associated with Cloud databases (~4%). However, these are operational expenditures – pay-as-you-go costs, that depend entirely on the business’ demand.

  • On-time Migration Costs

In addition to direct costs associated with transitioning to the cloud, migration to the cloud represents a considerable change to the way IT operates in both infrastructure and staff. In the short run, enterprises may experience disruption to business continuity and costs related to change management, integration, and incompatibilities among solutions.

  • Risk

Risk management can be a source of savings through Cloud; automation and standardization can reduce human error and additional layers of security can be more easily added in the Cloud. However there are risks associated with Cloud that an enterprise doesn’t face with the on-premises model.

  • Incompatibility/Uptime issues

  • Security/Compliance

  • Quantifying Risk

Conclusion

Organizations have traditionally seen the potential return from cloud investment as generated by cost savings: labor efficiencies, cost avoidance on the software side, and the savings that come from turning capital expenditures on hosting and hardware into pay-as-you-go operational expenditures. However, benefits from productivity improvements and revenue transformation opportunities are why the cloud is viewed as truly transformational.

In order for IT executives to ensure that they achieve ROI of Cloud in their organization, a thorough assessment of internal applications suitability for the cloud must be done. In addition, it is essential that the IT department works with the business side closely to determine what potential revenue opportunities are possible from moving to the cloud. It is only then that the true long term benefit of cloud can be realized.

Article By Shreekanth Joshi

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

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