Whether moving to the cloud delivers value or not – is not a question that today service providers often ask themselves. Clearly, it does. The cloud enables elasticity, business agility, increased resilience, increased staff productivity, and much more.
The question operators are asking today is whether it will save money. Everyone is concerned with costs - TCO reduction and ROI acceleration. So regardless of the value promise, the C-suite will demand to see the numbers.
This is where calculating the ROI of the cloud migration comes in to play. For, to get the numbers folks on board, you must present a convincing case.
The challenge of indirect costs
But calculating the ROI of cloud is not easy because there are many hidden and indirect costs of the on-prem model that may not be that obvious, but which must be taken into consideration.
These costs are often difficult to isolate as they are embedded in larger sums involved with the on-prem model. For example, if you decommission 50 servers in a data center of 500 servers, you will not only save the direct costs of the actual servers and their maintenance, you will also save hidden costs such as the power required to run and cool them, maintenance, perhaps even real estate, and more.
Identifying those hidden or indirect costs and articulating them in monetary terms is critical since including these sums plays a powerful role in making a solid convincing case.
The 3 categories of the ROI calculation
Before we take a closer look at these hidden costs, let’s first map the three fundamental categories of costs upon which the ROI calculation is based, namely: current costs, the cost of migration, and post-migration future costs.
For our cloud ROI calculation, we need to be able to gather data about each of these three categories in order to build an accurate and credible ROI.
Uncovering the hidden costs
Uncovering hidden costs requires performing a full and thorough audit. It is only through this approach that we can be sure that we have identified all costs that are related to the migration.
What might this audit encompass? Here are some thoughts to get you started.
Of course, there is the initial acquisition costs of on-prem capital equipment (including servers, rack infrastructure, and more) as well as multiple non-capital costs, such as electricity, as mentioned above. But there is also the cost of storage, network connectivity, and others. In addition, there is software licensing and system implementation.
As for ongoing costs, we have hardware upgrade/refresh, software licensing maintenance, technical system administration, patch management, performance tuning, and training, among others.
And let’s not forget about the costs of the IT teams involved in maintaining and fixing both hardware and software, the personnel cost of database managers, data center managers, and many others.
The value of non-monetary benefits
Calculating these costs is tricky but with the right expertise, it can be done.
However, the ROI job doesn’t end there. When making the calculation, it is critical to remember that the ROI is not just about quantifying the savings from reduced footprints.
There is also a lot of value that is gained after the migration is done. This is difficult to evaluate and is not necessarily easily measured in dollars. But it does indeed make a great impact on a convincing ROI.
Accordingly, we must also be able to present this value and the benefits it brings to operations, the business, and to customers. After all, improving performance across each of these domains is at the very heart of what drives organizations to a cloud migration in the first place.
Now, let’s take a look at some examples of the non-monetary benefits and value that can be gained from the cloud migration in a few areas.
The value of elasticity
Only cloud delivers the elasticity that enables the service provider to access the tremendous computing resources required for handling traffic increases on peak days such as Cyber Monday or Mother’s Day, for example – but without paying for the availability of these resources all year long.
The value of agility
The cloud also enables service providers to become agile organizations in many ways.
For example, with the cloud they can accelerate time-to-market by decreasing the time required for procuring and provisioning infrastructure. What used to take days and weeks in a physical environment, can be executed in the cloud within hours, even minutes, and in some cases, seconds.
Another example is the adoption of Agile and DevOps practices and the speed of cloud computing practices, which empower organizations to dare, to try harder, and to experiment with new verticals and lines of business, potentially driving new revenue streams.
The value of operational excellence
Cloud drives operational excellence by reducing redundant processes and leveraging advanced models such as platform- or content-as-a-service (PaaS and CaaS) to reduce the operation overload.
In addition, when operating in the cloud, the service provider can best leverage the benefits of automation together with artificial intelligence and machine learning for gaining immediate access to the market, customer, system, and network insights that improve decisioning, performance, and business results.
So, what’s next?
Now that we have a more detailed view of how to assess both your costs as well as the non-monetary value that migration delivers, we want to take a closer look at how we can quantify intangible, non-monetary value for a more fully substantiated and convincing ROI calculation.
Stay tuned. This will be covered in our upcoming installment.
And, in the meantime, we invite you to learn more in our whitepaper, “Evaluating the ROI of Cloud Migration”.