How to Calculate ROI on Cloud Computing (the “Cloud”) ?

Calculating Cloud ROI

Even an inexperienced manager has been faced with calculating the value of spending a dollar.  You could be faced with staying within a budget, justifying a purchase or trying to estimate the value, or return, of an investment in your company (“ROI”).  However, the task of calculating ROI on moving all or part of a company’s technology to the Cloud can be quite daunting.

Part of the problem is that opportunities to utilize the Cloud are evolving quickly and it is definitely not “one size fits all”.  There are numerous Cloud applications advertised seemingly everywhere – from simply storing personal photos to performing complex corporate operations.  Companies like Google, Apple, IBM, Microsoft and Citrix all want you to believe they have the best Cloud Services; but they all seem to speak a different language.  Don’t blame them, they all have different solutions for different types of customers.  Add to the confusion that some Cloud functions are device specific (i.e. Amazon Kindle) and that computing requirements for some applications can be so massive  that normal internet connections may not be able to support them.  Finally, how do you calculate the cost of an intangible?  For instance what is the cost of employee downtime?   What is the value to your business to be able to attract young talent who have grown accustomed to working on multiple devices at any hour of the day?  What is your technology image to investors, vendors and customers?

Before you simply throw up your hands and give up, there are some simple steps you can go through to begin to calculate ROI for your specific needs.  Like many difficult problems, start by breaking down the calculation to the most basic questions you can actually respond to.  You may end up with a list of “unknowns”; but you may be surprised that you can begin to hone in on a range of costs and benefits that may satisfy the boss and make budgetary sense.  Go through the following steps to begin to organize your priorities and define the parts of Cloud Computing that is right for your environment.

6 Steps to Calculating Cloud ROI

  • First and foremost, answer the question, “Why do we need the Cloud?” Identify any current computing problems you are trying to fix.  If you are faced with spending money anyway, the timing is right to consider Cloud solutions.  Do not make a move simply because you are enamored with the thought of going to the newest and best technology available.  While there are many benefits to be had in the Cloud, some companies can perform quite well with a home grown,on-site environment.  According to a study commissioned by Microsoft, the top three investments in corporate Cloud hosting in the next two years will be: Database E-mail c. Corporate Applications (CRM, ERP, and industry specific apps)
  • After defining existing problems to be fixed, take time to define what your computing requirements will be in the next 1 to 2 years. For example, will you be upgrading your operating or accounting software; do you need a new e-mail or customer relationship management solution; or is there new industry software that would help your business.  Faced with spending on new applications you will find that nearly all have been designed to be easily hosted and that a per user cost could be much more beneficial to purchasing a package that could become quickly dated or require updates and maintenance.
  • Determine how important access to data is in your business.  Would it be detrimental to your operation if you could not recover your data within minutes, hours or days?  The Cloud provides secure backup and remote access.  The cost of data storage can be pennies per gigabyte, and service levels to restore data can be set according to the importance to your business and your budget.
  • Another critical step is to consider how many computer users you have, as well as where and how they will access your systems. If all of your users are on-site, and use company equipment – Cloud access may not be as critical.  Conversely, if you have remote users like salesmen, your management travels frequently or employees work from home the Cloud provides a perfect solution to accommodate different company applications on virtually any kind of device.  Typically the cost per user will go down as the number of users go up.  You may also find that Cloud service companies may require a minimum number of users.
  • Determine the age and performance of your current IT equipment. This could be the straw that breaks your back (or your budget).   More and more companies are realizing that investments in on-site infrastructure, such as robust servers, are very costly.  With on-site infrastructure you also have the inherent risk that the specifications at the time of purchase do not meet the changing needs of the business.  Also, there can be compatibility issues. Even upgrades to workstations can add up.  Take the example of replacing all the desktops and laptops when Microsoft discontinued support on Windows XP.  The computing and RAM requirements of workstations connected to Cloud applications are significantly less than stand-alone pc’s or laptops.  For some users, thin clients may be all that is needed at a fraction of the cost of a full workstation.  When faced with an infrastructure purchase, Cloud computing should be an option to be considered.  One critical advantage to Cloud computing is that it is “scalable”, that is you can generally add users and applications by simply adjusting your contract rather than trying to re-calculate the on-site infrastructure needs and costs.  For you finance guys, Cloud contracts can be structured as monthly operating costs freeing up your precious credit or operating lines.
  • Finally, calculate what you spend now on your IT support. Look in your accounting reports or even just your check register – it’s all there.  Make sure you include debt payments if you borrowed or leased equipment.  If you have an IT department, there may be a significant labor component dedicated simply to network support and user maintenance.  There aremany hidden costs that sneak up on companies because they are isolated or seem individually insignificant.  There is often efficiency in combining these costs in the Cloud versus the cost for every individual user for things like:

a) Licensing
b) Software copies (like Microsoft Office)
c) Anti-virus
d) Spam filtering
e) Backup
f) Monitoring,updates and support

You have gone through the 6 steps.  You determined the need is there and the time is right to consider Cloud options.  Sharpen your pencil and get to it.  Depending on the industry and all of the applications that may be needed, a range for full Cloud outsourcing will be $125 to $250 per user per month.  Remember, that is an “all-in” estimate with hardware infrastructure, updates, maintenance, licensing and backup/recovery.   It also provides your company scalability for new users.  While calculating Cloud ROI seems like an art, the more you refine the 6 steps, it will start to become more like a science.

About us:

Net Activity, Inc. is a business-oriented  cloud, computer & telephone communication and voip phone services, company. It is our mission to make our clients business more efficient using our technology services.

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