Determining the cost of cloud adoption
In order to begin quantifying the benefits of adopting cloud technology, organisations should not only look at the return on investment but the total cost of ownership, says George Etheredge, ICT research analyst at Frost & Sullivan, speaking at the ITWeb Cloud Summit 2017 in Johannesburg yesterday.
While businesses are closer to determining the true cost of migrating to the cloud versus being on-premises, there are still some challenges to overcome, notes Etheredge. "We are not there yet, but we are on the way." If businesses that are looking to use cloud versus an on-premises system don't look at some of the key costs and benefits of cloud, they are likely to make the wrong decision, he adds.
The benefits will come through scalability and agility, but the cost will perhaps come through security, says Etheredge. Companies should reasonable and accurately be able to estimate the benefits of these three elements to determine the real opportunities it will derive from moving to the cloud, he continues.
"Generally businesses look at return on investment but when it comes to cloud we are looking at functionally identical systems... things that are going to do the same thing - for example a cloud CRM system or an on-premises CRM system, they do the exact same thing and the revenue potential is the same. And so by looking at return on investment you would be overcomplicating things. All you should actually be interested in is the cost, because the systems do the same thing, and so the measurement tool should be a determination of the total cost of ownership."
If the cloud system brings benefits that the on-premises system does not, then organisations can include this as a cost to the on-premises system, says Etheredge.
To begin quantifying the benefit agility, scalability and security introduce, it is necessary to examine how they impact the operation of the enterprise, he explains. Businesses should only choose the cheaper option once all costs and benefits are captured, says Etheredge.
The mistake companies often make in their comparison of on-premises and cloud systems is they think that the cost of on-premises is captured after the set-up costs and they forget to account for cost like maintenance, implementation, migration costs and downtime, he elaborates. In Africa, besides business continuity, the main costs to consider are bandwidth and electricity, he adds.
Etheredge points out even the most detailed models fail to capture the key benefits of cloud and its potential costs. To have a true reflection of the cost and benefits of choosing between cloud and on-premises, business agility, scalability and potential cost of security should be factored in. "Although it is impossible to capture all the cost and benefits, a more accurate comparison is going to be more beneficial than a less accurate one."
A lack of scalability implies a business or opportunity cost - the key advantage of scalability is that it passes the risk of sub-optimal investment decisions on to the cloud provider, says Etheredge. In addition, a non-agile system can result in time to market delays, he states, adding agility - the ability to deploy new innovations and products quickly, is gaining popularity as the most beneficial feature of cloud computing.
On the other hand, security threats constitute a cost to both cloud and on-premises systems and this concern is often cited as the primary reason businesses are unwilling to adopt cloud. It is impossible to capture all the costs and benefits, but a more accurate comparison is going to be more beneficial than a less accurate one, concludes Etheredge.