5 Ways to Compute Cloud Computing ROI

The future of IT is in cloud computing, but how do you explain that to the “C” level executives? This model uses two specific business metrics and 5 ways that you can explain the ROI of cloud computing to your boss or to the board:

• IT capacity – storage (GB or TB), CPU cycles (GHz or THz), network bandwidth (Mbs or Gbs), and/or memory capacity (RAM) a measure of performance.

• IT utilization – uptime availability (% available per year) and volume of usage (# of requests) as indicators of activity and usability.

Effective cost/performance ratios and levels of usage activity do not necessarily imply proportional business benefits. They are just indicators of business activity that are not in themselves more valuable than lower operating costs. What is needed instead is a set of business metrics that build on the cloud computing model.

The following are business metrics that can help translate the indicators from the capacity-utilization curve to direct and indirect benefits to business and examples of how a CAPEX is different than an OPEX in cloud computing:

1. The speed and rate of change – Cost reduction and cost of adoption/de-adoption is faster in the cloud. Cloud computing creates additional cost transformation benefits by reducing delays in decision costs by adopting pre-built services and a faster rate of transition to new capabilities. This is a common goal for business improvement programs that are lacking resources and skills and that are time sensitive.

2. Total cost of ownership (TCO) optimization – In cloud computing, users-not just IT-can select, design, configure, and run infrastructure and applications that are best suited for their business needs. Traditionally this has often been strictly in the realm of IT even after projects are handed off to production services, but in cloud computing environments end users are more involved.

3. Rapid, elastic provisioning for dynamic usage – Resources can be scaled up and down to follow business activity as it expands and grows or is redirected. Provisioning time compression can go from weeks to hours. This service management affects end users and business needs as the scope of functionality and services for users evolve and seek new solutions.

4. Increased margin and cost control – Revenue growth and cost control opportunities allow companies to pursue new customers and markets for business growth and service improvement. And because it can scale, IT avoids over-and under-provisioning of IT services to allow for smarter business services. This is enhanced capacity utilization, the ability to add and use hardware on-demand without extra hardware or labor costs.

5. Business process improvement – Cloud computing capabilities can be leveraged through shared services. Users can have access to business capabilities allowing improvement or development of new skills and solutions through cloud sourcing and on demand solutions like Amazon Web Services, Google Apps, IBM Cloud Computing, Microsoft Azure, and HP Cloud Assure.

These five measures define a new set of business metrics that can be used to create a matrix and dashboard of your current and future operational business and IT service needs relating to your cloud computing potential return on investment.