The Real ROI of Cloud

Is hard return on investment all there is?

In exploring business (and tech) projects, we have a tendency to think about the immediate, quantifiable ROI. Yet, there are times when the soft costs or other benefits outweigh any measurable ROI, and sometimes are even worth a negative ROI… in the short term.

This was highlighted to me again yesterday. A colleague of mine is heading up a project to move tens of thousands of VMs from on-premise to the public cloud.

As a technologist – engineering and business – I wanted to know the calculated ROI. I have had many interesting discussions on the public cloud business case (especially with Simon Wardley and Joe Weinman), so I asked my friend for the expected recurring cost of public cloud vs. the ongoing expenses continuing with their private data centres, and hence the ROI.

They didn’t have them.

They certainly knew how much their estimated public cloud bill would be – >$5MM per annum – but the estimated run rate if they kept going privately was not very clear.

I was surprised: how do you commit to changing millions of dollars of expense without a solid business case backed by a real ROI? Didn’t the CTO have to present to the Board?

My friend explained that the ROI just didn’t matter that much. While they do expect cost savings, the initiative isn’t really about those cost savings. It is about two other, more ephemeral but much more important things:

  1. Transparency
  2. Agility

Transparency

The reason they didn’t have ongoing private data centre costs wasn’t because they didn’t want them; it was because those costs were so opaque and spread out that they were very difficult to get. Some fees went to data centre vendors; others went to hardware vendors; others to consulting; others to insurance. Some costs were borne by one cost centre, others by another. Actually finding a fully-loaded cost of running “Service A” or “Website B” or “Mobile App C” became an exercise in near-impossibility.

By getting rid of all of those costs and bundling them up into just a few clear numbers – hourly cost of running some instances, plus direct storage costs and bandwidth costs – that are directly affiliated with each given app and service, the CTO and CFO gain something far more important than 5% or 10% or even 30% in opex reduction; they got transparency. When the project is done, they will know with a high degree of accuracy and confidence exactly how much each service costs. Combine the cost for each service with what it is worth, and you can figure out something far more important than the ROI of one IT project, no matter how large: the ROI for each business!

Agility

The second big benefit is flexibility. In a private data centre, if I want to launch a new service that requires 2 databases and 10 servers along with 10 routes through 3 layers of firewall, not to mention monitoring and backups, it can take anywhere from weeks to months of:

  • Filing requests
  • Negotiating with internal teams
  • Negotiating with vendors
  • Allocating budget for capex and opex
  • Deployments
  • Changing procedures and runbooks
  • Everything else involved in procuring products and services managed by multiple teams, both internal and external

Making things worse, if we are out of space in the required data centres, or want to have close proximity to customers where we may not have a presence, say, Singapore, the pre-deployment itself can take half a year!

In the cloud, by contrast, it is, at worst, hours.

The ability to request servers, storage and bandwidth where and when needed and pay for it directly out of the right budget gives a business organization the ability to respond to changes in the markets, and take initiative when they foresee an opportunity. This, indeed, is agility.

Summary

Sometimes an initiative should be undertaken because of the immediate, measurable, solid return on investment that it brings. But real change, the kind that gives you the ability to be more nimble and agile, improve your culture and accelerate your business, does not come from a cost-savings project. It comes from having the executive vision to see where you can leverage processes and technology to make fundamental change, whatever the ROI.

Is your business, and especially are your R&D, engineering and operations teams, moving as quickly as they can? Do you respond in real time to market changes, or better yet initiate them? Or are your technology and processes slowing you down, dragging you through molasses?

Ask us to help. Internet speed is a call away.

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
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