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The economies of cloud viewed through the prism of total cost ownership (TCO) presents a skewed version, for this considers only basic costs as a factor of infrastructure savings. Still, when hard-pressed to demonstrate the return of investment (ROI) from expensive cloud investments, most CIOs turn towards TCO calculations. However, TCO models are extremely vendor-specific, and for the user, generally remains domain or industry-specific. And hence, it can vary depending on the company size, the industry it operates in, and business processes it’s looking to migrate. A typical ROI calculator based on TCO would consider the following:
The rise of Amazon, Netflix, AirBnB and Uber are a testament to disruptive economics of the Cloud that enabled hitherto unknown companies, to grow at lightning speed to displace the elephants in the market who were too slow to move and left in the dust. None of these companies would have succeeded without an elastic infrastructure and economic Cloud model that allowed them to scale so rapidly on success to edge out the big players. Cloud provided them with a platform to experiment rapidly, evolve, and gave them a level of innovation agility that made it very hard for competitors to catch up. Often, it is never the first concept that is the biggest thing but rather the speed at which you can respond to the value your customers’ demand, which is a base principle of the lean startup approach.
A simple lift and shift involves moving the bare metal machine to virtualized cloud instances, providing 20% savings on an average, but this is just the tip of the iceberg in value that the cloud can provide, and also the least of its benefits. To create a more holistic ROI model for the cloud, we need to consider three other key areas in our ROI equation, as shown below of Business Agility, Developer Productivity, and Operational Resilience associated with Risk.
A company can place successful bets on its digital strategy, when its innovation philosophy meets the elastic economic model of the cloud. A cloud economic model allows one to fail fast and exit at low cost and snowballs on a successful bet. Developer productivity and business agility are particularly enhanced because the cloud allows shift left on innovation, rapidly spin up/down POCs, and deploy QA and Dev environments on-demand. Since it is difficult to capture data around business agility, operational resilience, and development productivity in comparison to TCO metrics, CIOs tend to go for the latter more often. However, measurable data is available in these areas if one digs deep enough in the systems.
For a more holistic model for calculating ROI, we need to move from the simple Cloud TCO calculation to a model that is more encompassing of these benefits. The formula for such a calculation can be:
Business agility benefit, dev productivity, and resilience savings can be calculated with a bit of investigation and correlation. This data and more are lying untapped within your enterprise if you need to show this to your business stakeholders. You just need to seek it and use the right scientific formulas to correlate it to the key factors mentioned in the formula. For example, data on developer productivity can be found in your ALM/SDLC tools, and to correlate to productivity, one can do a reverse function point calculation even to derive productivity scores for lines of code. The same can be followed for business agility and operational resilience. With a bit of effort, it will not be hard to build a live ROI calculator feeding directly from the cloud APIs, the data in your business systems and make this a live dashboard to measure costs and outcomes of your elastic bets.
On average, migrations derive a 20% cost saving from cloud migration using predominantly lift and shift strategies. The most significant opportunity, however, is in business agility that can provide a 10x benefit to specific product lines because of the power of rapid elastic scalability. Yes, many bets on product lines will fail, but creating an elastic cloud development model provides you with an advantageous and sustainable model for innovation. And the more business bets you can make-measure-fail/learn fast, the more likely you will hit that one bet that gives you an exponential business benefit. The real question is in todays competitive and rapidly changing digital climate, can you afford to lose that opportunity?
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