When it comes to digital transformation, the cost benefits aren’t always easy to quantify—at least not initially. Companies today are constantly bombarded with new opportunities to advance, become more agile, and gain a competitive advantage over others in their industry. But in a time when the business landscape is changing day-to-day, it’s often difficult to know when investments are truly worthwhile. Lower upfront fees may be offset by higher costs of staff training. Higher efficiencies may be offset by complex contract agreements. In truth, there is no easy way to determine the true cost of ownership for many of the transformational technologies being developed today. Cloud is no exception.
Studies show more than half of cloud users have a goal of optimizing costs. But the more we learn about the complex world of public, private, and hybrid cloud environments, the less we’re able to correlate those services to clear and present cost savings. In fact, according to RightScale’s State of Cloud Survey, the number one challenge for many cloud users is managing costs. Clearly, there is a disconnect between the perceived promise of cloud technology, and the real benefit it provides to today’s businesses. So, how can companies determine the true cost—and benefit—of cloud ownership?
Step One: Communicate
Awhile back, I wrote a piece about the importance of CIOs and CFOs working together to make smarter tech decisions for their companies. Cloud ownership is the perfect example of why better communication between these two often-siloed teams is so essential. While CFOs tend to focus on the operational expenses associated with certain technology purchases, CIOs need to be able to communicate the “unseen” financial benefits that cloud may—or may not—offer to their companies. They need to talk about whether economies of scale, metered use, and customer support are priorities for their company—whether they prefer lower up-front costs and opportunity costs.
The truth is, cloud is not the right solution for every company—and it won’t always end in your company’s financial favor. As with any investment in tech today, representatives from all relevant areas of the company need to get on-board with articulating the true costs of ownership before those costs are spent.
Step Two: Consider the Options (Public Cloud Vs. Private Cloud vs. Virtual Private Cloud)
Contrary to how simple “cloud” ownership sounds, the range of opportunities to use cloud in your business are highly complex and ever-changing. To make the most of cloud ownership, your company needs to weigh the true cost of not just one option—but all the relevant options for your business—before making an informed decision. For instance:
- Public Cloud: Because it’s a multi-tenant environment with pay-as-you-grow scalability, it’s often the lowest-cost, most flexible cloud option. Still, public cloud is not without its drawbacks. Shared data environments mean less secure data, often with unpredictable accessibility and traffic flow. In that case, public cloud is best for non-sensitive, public-facing operations—and its true cost must include things like potential time and data loss.
- Private Cloud: Private clouds are often as scalable as public clouds, with the added benefit of personalized security features. Where can their TCO get fuzzy? They often require higher up-front investments in infrastructure that may or may not pay off. For instance, if you launch a private cloud and quickly decide it isn’t for you, you’ll have wasted the money you spent to customize and secure it. (See Step 1 for ways to avoid this.)
- Virtual Private Cloud: A hybridized public/private variation of cloud, this option is an on-demand private cloud that operates in a public cloud environment. Yes, it’s scalable and more secure than a public cloud. But it also requires investments in customization before the cost benefits even kick in. Again, TCO can still feel murky even when the “best of both worlds” of cloud are present.
Step Three: Do the Math, and Keep Doing It
The thing about computing TCO for cloud is that it requires not just one conversation, but a commitment to routinely measuring the real cost and benefits it provides. That means regularly asking questions like:
- What is my company’s usage cycle? Is it regular? Cyclical? Where can we save in reduced data and usage costs?
- What variables are impeding my cost savings? And how can I improve them? For instance, am I spending a lot in training? Is my contract costing me money I don’t need to spend? Am I paying a lot for data redundancies I don’t need? One thing is for sure: where there is an inefficiency, the digital transformation can likely offer a way to address it. Be real with yourself on where your company is gaining—or losing—in the cloud game.
- What is cloud use worth to me? Does it save peace of mind? Does it free capacity for IT to focus on bigger and better things? Value judgments are not without merit in the digital transformation. They may not have a specific line item on your budget, but they do often carry weight in your overall tech strategy.
As I said before, there is no one “right” answer when it comes to cloud. And you—combined with your relevant team members—are the only ones who truly knows how it can help—or hinder—your bottom line. Quite truthfully, many of us will soon be racing toward edge computing and hyperconvergence—two other options to consider as you determine the best and most efficient way to manage your company’s data and technology needs. The decisions you make surrounding cloud must always be made knowing that technology changes—your company’s needs will change. And no one outside of your company can quantify the value “agility” can bring to your business.
Photo Credit: deniselebeau Flickr via Compfight cc
This article was first published on Futurum Research.
Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. From Big Data to IoT to Cloud Computing, Newman makes the connections between business, people and tech that are required for companies to benefit most from their technology projects, which leads to his ideas regularly being cited in CIO.Com, CIO Review and hundreds of other sites across the world. A 5x Best Selling Author including his most recent “Building Dragons: Digital Transformation in the Experience Economy,” Daniel is also a Forbes, Entrepreneur and Huffington Post Contributor. MBA and Graduate Adjunct Professor, Daniel Newman is a Chicago Native and his speaking takes him around the world each year as he shares his vision of the role technology will play in our future.