Cloud computing presents businesses with a variety of options while gaining cost savings through the shift of capital expenditure (CAPEX) to operating expense (OPEX).
When calculating cloud Return on Investment (ROI), there are a number of tangible and intangible costs that should be considered in the total cost of investment.
By definition, ROI is a performance measurement used to evaluate the efficiency of an investment. In simple terms, the classic ROI calculation is:
ROI = (Gain from Investment – Cost of Investment) / Cost of Investment
For example, if a business makes an initial CAPEX investment of $600,000 over two years and gains benefit (cost savings + new revenue) of $750,000 during this same period, the ROI will generate a return of 25 percent. Done.
However, understanding the inherent costs, both tangible and intangible, when calculating cloud ROI can help business leaders better understand the total cost of investment.
Capturing / measuring tangible costs can include:
Shifting cost from CAPEX to OPEX
Very simply, cloud services can shift capital expenditures to operational costs. In addition, other cost saving considerations should include reduced labor to run infrastructure and applications, licensing purchases and maintenance, technical support and user support, maintenance (upgrades, updates, patches, etc.), and data center hosting (building, power, cooling, etc.).
Greater speed in provisioning
Customers gain access to and benefit from highly trained skills and capabilities to gain savings in labor and employment costs (onboarding, salary, benefits, training, etc.). This can translate to rapid installations to scale and avoid potentially costly downtime associated and enable faster productivity.
Redundant sites that can provide business continuity and disaster recovery in a more efficient manner.
Scalability or surge capacity
Enterprises use only cloud resources as needed or pay-as-you-go, thus reducing idle assets.
Cost benefit of outsourcing
Can eliminate delays, facilitate quick decisions, and enhance transitioning to new applications that can free businesses to focus more on research, market, and competitive initiatives that can ultimately result in greater revenue.
Stopping here can be misleading. There are many intangible costs or value that should be factored into your ROI calculation, including:
Prevention of lost opportunity
Outsourcing to the cloud can potentially help land new business or expand into new markets. More importantly, it may help a business avoid losing an opportunity.
Focus on core business
In-house IT resources can be re-deployed to support core business activities.
Real-time collaboration can enhance quality and innovation throughout your enterprise.
The risk of managing security breaches, data loss, disaster recovery can be transferred and represent a tangible or intangible benefit.
Greater and more-focused productivity, process improvement, competitive advantage, and increased market share all can result in immeasurable employee value.
In summary, there are many tangible and intangible features with cloud computing, and gaining an in-depth understanding of each of these factors will help when calculating cloud ROI.
For more information on this topic, please visit www.americanis.net/cloud.
Submitted by Kevin O’Hare, chief financial officer of AIS