Analyzing ROI based on specific factors will enable buyers to find the right cloud delivery model to meet business needs.
By Stanton Jones and Scott Feuless
For companies that are not born in the cloud, moving to a cloud-centric delivery model involves choreographing a complex migration of many parts, each with its own associated risks and rewards. Calculating the return on investment (ROI) for making these moves involves measuring the cost, the benefits and how those will change over time for both a traditional on-premises solution and one or more potential cloud solutions. While figuring cloud ROI is not easy, it is a critical calculation that will inform decisions about how IT delivers value to the business and how the business invests in IT.
Here are six factors to keep in mind regarding cloud ROI.
1. Start by actually measuring it. Many believe that the cloud is inevitable and simply take it on faith that the ROI will be there. But going through the exercise of figuring ROI—learning where cloud makes business sense, how the greatest benefits are realized and what the trade-offs are—can be incredibly valuable in supporting key decisions as you form and revise your cloud strategies.
2. A cloud buyer’s ROI will look different depending on the delivery model that the company employs. The ROI on software as a service (SaaS), for example, may take much longer to realize than the ROI on more infrastructure-focused cloud services.
3. Like many business decisions, moving to the cloud is not all about saving money. Much of the ROI from a cloud delivery model may come from the agility that goes with faster provisioning times, improvements in service or the opportunity to support new revenue streams.
4. Most cloud solutions provide a narrow set of services, and most still require support from the buyer. When buyers see X dollars per person per month for SaaS, or Y cents per hour for IaaS, they are seeing only a portion of the cost buyers will incur to successfully implement and run a cloud service. Including ITIL-based support and governance costs in ROI calculations is critical.
5. For IaaS services, ROI will vary tremendously depending on the size and type of workload going to the cloud. If you’re bursting a high-performance computing application to the cloud during the two days per month when you need to double its compute capacity, you’re payback could be significant. Meanwhile, applications with relatively steady use may have modest returns or none at all.
6. ROI will change dynamically over time. Many organizations have shown that they begin to achieve increased organizational efficiencies and reduced costs after they reach a certain tipping point, a point at which they have moved a certain significant percentage of their infrastructure to the cloud. Being freed of the ongoing work involved with purchasing, installing, configuring and upgrading hardware pays off over months and years, but when buyers begin avoiding major tool purchases, or when they are able to close a data center, then there is often a sudden, step-wise increase in the return.
The cloud creates significant new opportunities to reduce costs and move faster. However, these opportunities vary dramatically depending on the cloud delivery model, the workload and the amount of time buyers are willing to commit. Analyzing ROI based on these, and many other factors, will enable buyers to find the right delivery model to meet business needs.
Stanton Jones is an analyst of Emerging Technologies at ISG, and Scott Feuless is a principal consultant at ISG.
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