What to do when the cloud business case just doesn’t stack up

When I was consulting on a cloud readiness assessment I was speaking with the CEO who told me that they had already undertaken an evaluation of whether to move their corporate email to a SaaS solution and the evaluation showed that the cost of moving to cloud far exceeded the cost of the in-house service and therefore the business case just didn’t stack up.

This is an extract of the conversation that I had at that time…

The CEO said, “The results of the review showed that compared with our internal email service the SaaS solution would be twice as expensive and half the speed!” he said.

“Do you believe that?” I asked.

“Well No” he replied.

“Why not?” I said, as he now had my curiosity.

“Well the review was undertaken by the IT Manager who looks after email and storage solutions and quite frankly we aren’t sure that he was…. shall we say being all that objective!”

As it turned out the ensuing cloud readiness and business case analysis discovered that that internal review was missing a number of key considerations that are necessary to ascertain the Total Cost of Ownership (TCO) of the current email service.

Just some of the things that were missing from the internal review were the cost of the large support team, the energy needed to run a typical in-house server and the cooling, maintenance, security and backup costs.

Here are some of the potential challenges when asking your internal IT organisation to asses whether the business case for cloud actually stacks up:

  • It may be unrealistic to expect IT organisations to provide an unbiased comparison between on-premise and cloud as there can be an inherent conflict of interest when a CFO asks the CIO to show them how they can migrate significant portions of the IT business unit to an alternative provider;
  • Cloud economics is still far from simple and there is still confusion with the growing array of cloud services and possible use cases for the cloud;
  • Many organisations still face challenges shifting their commercial funding models from capital to operational spending and the comparative analysis can be very complex and difficult to get right with cyclical and timing issues;
  • Comparative cost analysis can often omit important considerations such as labour costs and the costs of energy, cooling, maintenance and backup. Some internal analysis that I have seen simply compares an on-premise virtual machine to a VM in the cloud;
  • The analysis may overlook the hundreds or thousands of under-utilised VMs that currently exist in the environment and how potentially different the footprint will be in the cloud environment;
  • Some analysis may omit considerations around existing assets such as licences and the comparison of moving from complex enterprise licencing arrangements with the more simple per-user construct can be tricky to get right;
  • Finally, the cloud analysis may overlook the impact that the cloud deployment will have on the existing backup and management programs with many organisations having to rethink their approaches as they look to leverage cloud-based solutions.

While most of the comparative analysis is fixated on costs, the TCO also needs to consider the efficiency gains that come from process redesign that cloud brings to the IT organisation. A key example is the provisioning time and the ability to scale quickly which typically leads to a vast improvement in service delivery and response times.

The cloud will call for shifts in processes as basic as procurement and budgeting, which will no longer involve submitting funding requests based upon relatively simple hardware and software cost calculations.

With the overall analysis of cloud versus on-premise, cost alone should not be the sole determining factor in the adoption of new cloud services, There are a raft of other considerations that include: discovery, compliance, privacy, sovereignty, security and other legal issues, all that help to confound many cloud deployments and to make the business cases even more complex to get right.

Twitter: @CIOmatters


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