ROI (Return on Investment) From The Cloud

A business organization often measures the value of investments or any move that requires money in terms of the return on investment (ROI). Perhaps it is the only reason that top management will agree to any proposal, especially bold ones like adapting the relatively new and untested cloud computing paradigm. Businesses have a habit of only embracing what is proven and tested while disregarding the possibilities and rewards of embracing new systems and methods. Though, I have to admit that more and more organizations are becoming bolder and starting to embrace new technology, especially the relatively new and smaller ones who are just getting into the business. These are the ones that have less to lose because they have not invested in older systems which are considered as lost investment when abandoned, and they can start fresh with new systems not weighted down with the familiarity of old ones.

Though it is quite difficult to calculate ROI from using cloud computing, we can start by finding returns in the three major benefits area for adapting cloud computing: Productivity enhancement, cost reduction and revenue transformation.

  • Cost savings from using cloud services – after doing categorization on the organization’s applications, they can estimate potential savings by shifting to cloud services. One way is migrating ERP resources into a public/private cloud infrastructure. Through virtualization and consolidation, they can reduce the number of servers running in-house and reduce the number of racks used significantly. This can generate up to 70% ROI for a Tier 3 workload and about 50% for Tier 1.
  • Cost Savings from Labor and software – Huge savings can be had through the labor reduction brought by reducing hardware infrastructure. This includes savings from the development and maintenance of applications and hardware. There is also a highly reduced need for installed software as cloud-hosted software can be made available to any workstation with an internet connection, which significantly lowers the required budget for software.
  • Cost savings from hosting – the spending budget for hosting infrastructure is made evident quickly. Hosting in-premises means acquiring your own hardware which is considered as a capital expenditure and could be quite large. While availing of cloud hosting is considered as an operational expenditure because of its subscription or pay-per-use model.

But often, the ROI is not simply measured through the savings in terms of monetary value. The best measurement of the ROI of cloud computing is simply in its VALUE. ROI doesn’t always look very enticing especially when cloud computing is concerned. That is why administrators and CIOs should be looking at the apparent values that come in many forms when employing cloud computing. What they should be asking is “What do I expect to get if I use this service?” and similar value related questions, not monetary related ones. You can set up metrics to determine the apparent value that cloud computing services are able to provide.

Take for example the following:

  • The speed of adaptation and deployment of the cloud service versus the maintenance and upgrade costs and downtimes of the old system.
  • The general ease of use and dynamic usage afforded by the new system. How flexible will the new system be in terms of coping with the ever changing business needs and goals?
  • What are the risks involved with processing and storing data offsite and not having to worry about the back end of the systems?
  • The support and other value added services offered by the provider. Are there any at all?
  • What are the environmental impacts of sourcing our IT services from the cloud? Is there a positive outcome to more and more organizations having co-location of infrastructure?
  • What about the apparent savings and the hassle in paying utility bills?

It is true that ROI is important, but the monetary side should not be the only basis for ROI. The value add offered by cloud services should also be highly considered when contemplating the use of cloud computing, even if it is sometimes intangible.

By Abdul Salam

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