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The ROI on Cloud Computing

By June 29, 2010August 26th, 2020Blog

The current thought common for business decision makers is to make sure that any IT investments are delivering a Return on Investment (ROI).  For traditional technologies that are owned/leased by the company, the calculations are pretty simple. 

We figure out a useful life for the technology (usually 5 years) and compare the gains and benefits from a new IT solution to the costs of the new solution.  With traditional solutions, our costs are the combination of the capital expenses and the annualized operational expenses over the useful life.

For the newer class of Public Cloud solutions, the approach for ROI can be a sticking point.  For those considering the public cloud, how do we compare the offset in capital investments for ongoing operational costs?  What’s the time period for measuring the operating period?  Are public cloud solutions less expensive in the short run, but do the harbor more costs over time?

It’s a common perception that Cloud computing works well for commodity applications, but that anytime you need to integrate or perform complex configurations to tie a Cloud application into your internal IT infrastructure, your costs are going to rise rapidly.  So how do you calculation ROI.

Many organizations are starting with Proof of Concept pilots to try and understand the ongoing operational and customization investments in Cloud applications.  By starting small, they can gain a better understanding of what it’s going to take to migrate to a Cloud application.  They use this early information to model a basic ROI calculation and then revisit the calculation at each milestone in the pilot to see how the ROI changes.  The pilot also allows you to test the benefits of the Cloud application to see if it’s delivering on expectations.