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Wednesday, May 26, 2010

8 Ways to Measure Cloud ROI

An initiative from The Open Group has developed a set of key considerations for how to build and measure return on investment (ROI) for cloud computing initiatives from a business perspective.  By examining the benefits cloud computing offers organizations and showing the potential return it can provide from the beginning, companies may find it easier to gain buy-in for cloud initiatives from the executive team, as well as the IT department.  Cloud computing has been described as a technological change brought about by the convergence of a number of new and existing technologies.

· The ability to create the illusion of infinite capacity performance is the same if scaled for one or one hundred or one thousand users with consistent service-level characteristics.

· Abstraction of the infrastructure so applications are not locked into devices or locations.

· Pay-as-you-go usage of the IT service; you only pay for what you use, with no or minimal up-front investment costs.

These technical characteristics can also be found in many non-disruptive technology solutions.

What sets the promise of cloud computing apart is that the rate of change, magnitude of cost reduction and specific technical performance impact that cloud computing can provide is not just incremental, but can give a five-to-ten times order of magnitude of improvement.  The famous graphic used by Amazon Web Services illustrating the capacity versus utilization curve has become an icon in cloud computing.  The model illustrates the central idea around cloud-based services enabled through an on-demand business provisioning model to meet actual usage.  This model is important to businesses because one of the core precepts of cloud computing is to avoid the cost impact of over-provisioning and under-provisioning of computing resources.  This benefit is in addition to the opportunity for cost, revenue, and margin advantages of business services enabled by rapid deployment of cloud services with low entry cost, as well as the potential to enter and exploit new markets.

The problem with using the view of capacity and utilization alone is that it is a technology provider/seller viewpoint essentially based on key performance indicators (KPIs) rather than business benefit metrics.  What is needed instead is a set of business metrics that build on the cloud computing model.

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.

1. The speed and rate of change
2. Total cost of ownership optimization
3. Rapid provisioning
4. Increased margin and cost control
5. Dynamic usage
6. Risk and compliance improvement
7. Enhanced capacity utilization
8. Access to business skills and capability improvement

The work of The Open Group is developing tools and frameworks to enable businesses to evaluate these cloud computing opportunities to focus on how flexibility, competitive advantage, compliance risk and security in all aspects of the cost of cloud adoption can be better defined in a business language.

Posted on 05/26