Moving to Cloud Part III – Return on Investment

The final broad area for consideration before you move into the Cloud is return on investment (ROI). All that service is going to come at a cost and it is critical to understand your ROI before you move. This area is complex, you’ll need someone to help you through the various mechanics and models that exist. ROI is likely to differ for different services that you might be considering moving to Cloud. For example, Email generally has an excellent ROI whereas that legacy application running on a proprietary system may be more difficult to justify.

To further complicate the issue, ROI should not be viewed as just financial. There will be a financial cost to every element, but the question you should ask is, what additional functionality or service do I get (or lose) as part of the move to Cloud, and what does that cost me?

At a high level these are the types of elements that should be considered as part of your ROI model. I’m also going to go out on a limb here and say that a lot like outsourcing, Cloud is not primarily about saving money.


Risks can be evaluated by ICT Service and then quantified between staying as you are or moving to the cloud. The Cloud may present increased risk for services at a lower cost to the organisation, or, if you are lucky, lower cost to the organisation while mitigating risk. It may be that the move to the Cloud costs more, but decreases your risk profile. The value of that needs to be understood at a business level.

Strategy and Future

This is hard to link to ROI but is important. It tends to be more of a philosophical area and is often not included as part of the thinking around moving to Cloud, when it should be.

The ICT world is rapidly moving to Cloud. The large global vendors see it as an opportunity to reduce their costs significantly, the same as customers. It is likely that within ten years some ICT services that organisations consume, are likely to only delivered via Cloud. It is important that research is done to assess if there comes a point where Cloud becomes mandatory.

Coupled with that are questions around your own organisation. How does a move to Cloud support the long-term directions and strategy of your own business? Is it likely that you will need to deliver business services in a Cloud model to your customers in the future? Will they demand it?

This creates a difficult, crystal ball gazing, financial and capability model. Is there a point where it becomes extremely expensive to maintain and manage your own ICT services as opposed to delivering them from a Cloud? As Cloud continues to become more and more pervasive, does this mean that running your own ICT services becomes more and more expensive?

Strategy should also focus on where the Cloud service is delivered from. It is likely to be less risky to consume Cloud services within your own national borders for example, where as it may be cheaper to deliver them from a developing country, but how stable are those political environments likely to be long-term?

Infrastructure Savings

This tends to be the primary focus of ROI. This is less about consolidating and virtualizing infrastructure and placing it into the cloud and more about moving from a capital-intensive investment programme to an operational cost model. There may be clear jump points to move to the Cloud, for example, if you have a fleet of servers that are coming up for replacement, it is likely to make financial sense to jump to Cloud rather than replace them. If you have a new fleet of servers, the ROI is less attractive.

Some services lend themselves to a better ROI than others. For example, within New Zealand Government, it is estimated that there are over 700 Microsoft Exchange Servers across a user base of less than 200,000. Globally, large organisations have rationalised their email, delivered it out of the cloud, with millions of users (the US Army is in the process of moving 1.6 million users into Cloud email), on a very small infrastructure footprint.

Legacy and bespoke applications are less likely to have a large ROI. For example, mainframe based applications (though these services are starting to appear as offerings in the Cloud).

Software and Application Changes

The cost of software licensing does reduce in some cases when you move to Cloud. Again, this tends to be around the highly consumed and standardized services (email or web). Again, like hardware, it can move you from a Capital intensive (“true up”) model to a more easily managed operational cost model. A good licensing model is part of your ROI.

Don’t underestimate the costs of moving your in-house applications to the Cloud. They may need to be altered in order to transport them. This can be very costly given testing, project management, transition, and other change related costs.


It stands to reason that if you are moving your ICT services to the Cloud (think outsourcing again), then you will have less of a need to employ people directly yourself. However, in order to manage those services for your organisation, you will need to invest in staff. Your ICT unit will always be the link between the business and the supplier you are buying services from.

The Cloud then demands a new type of resource and model, similar to outsourcing, to ensure that what you are getting is what you have paid for. You also still need your change agents and service delivery people to understand and drive the evolution in service that your business will demand.

Moving to the Cloud to save costs, particularly staff costs, can be a false economy. Worse, if poorly planned, you can lose control completely with the supplier interacting directly with the business.

Flexibility and Speed

By far and away this is the area where the best ROI potentially can be seen.

For example, let’s say that you have an in-house development environment that includes some dozens of environments.

Moving your development environment, which is traditionally a capacity hog and difficult to manage, could allow you to deploy environments faster, pass the cost of environments directly on to projects, only use development environments when you need them, and manage capacity fast.

This as opposed to the traditional in-house model where environments take time to deploy increasing costs to projects, costs are borne by the ICT department because it is too hard to split them out, development environments can hang around for a long time, and the provision of capacity can be very slow, especially as you start to get near the edge of what is available.

Most large Cloud providers allow you to self provision via  a portal. You can stand up a server image using a menu system within seconds and understand the cost of that instantly. You could deploy that internally, but the cost is likely to be higher. You will need a Cloud tool suite of some description and enough capacity to manage demand.

Power and Cooling (and Green ICT)

Put simply, moving your ICT Services from your own environment is going to save you a small fortune in power and cooling costs. The reason is simple, Cloud providers have the mass to be able to house hundreds of thousands of servers and infrastructure in purpose-built facilities. You only pay for what you consume and the larger the collection of infrastructure the more the costs are reduced.

It also allows you to feel a little happier about your carbon footprint, if that is something that is important (or mandated) for you. You could become quite technically green about this by picking Cloud providers that are clean and green. At the moment, these large green datacentres tend to be outside of New Zealand, but this is likely to change over time. Providers are using mixes of solar power and natural cooling as opposed to the traditional “drag it off the grid” approach cooling a closed environment.


The ROI models for Cloud are not simple.

Your model should stretch over a number of years, don’t make the mistake of trying to run a model for a single year.

Don’t forget the costs of Governance, the ICT organisation change between the delivery of internal ICT Services versus a Cloud (outsourced) model.

Cloud is not about purely saving money.

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