8 Cloud Computing Return on Investment (ROI)
Until recently business viewed Cloud Computing ROI through capacity-utilization lens primarily because it wanted to avoid the cost impact of over-provisioning and under-provisioning. The on-demand service model and ability to pay-as-you-go enables business to provision for the service just when they required it (without worrying about the fixed cost and up-front investment cost). To a large extent, the Capacity vs. Utilization model sufficed for a practical ROI model as it focused on operational efficiency.
As the industry matured, business realized that there could be other drivers to measure the ROI. In addition to operational efficiency, performance efficiency is another critical aspect they cannot overlook. Not all cloud computing service providers provide the same level of Quality of Service (QoS). Hence business has starting pushing service providers to add stringent Service Level Agreements (SLA) to the service agreements/contracts. A common QoS Key Performance Indicator (KPI) used is Availability and Recovery SLA – an indicator of availability performance compared to current service levels.
The next driver of ROI is the security assurance. For business involved in sensitive data management (e.g. financial services, healthcare industry), data security and risk management is critical component of their business. They are willing to pay more for a service if they are assured that their data would be protected and not compromised with.
Depending on the nature of the business and its requirements/expectations from cloud service providers, organizations use a plethora of combinations of KPIs and ROI models to measure the cloud ROI. The key ROI drivers are still a continuation of traditional IT drivers – time, cost, quality, and profitability. Based on the specific need of the business, parameters such as compliance, risk management, sustainability, etc. are added.
The Open Group Cloud Computing Work Group introduced a key approach to measure Cloud computing ROI by giving an overview of Cloud KPIs and metrics. Figure and table below show an overview of its Cloud Computing ROI models and KPIs.
Figure – Cloud Computing ROI Models and KPIs
Table below describes each of these indicators:
|
Availability versus recovery SLA |
Indicator of availability performance compared to current service levels |
|
Workload – predictable costs |
Indicator of CAPEX cost on-premise ownership versus Cloud |
|
Workload – variable costs |
Indicator of OPEX cost for on-premise ownership versus Cloud; indicator of burst cost |
|
CAPEX versus OPEX costs |
Indicator of on-premise physical asset TCO versus Cloud TCO |
|
Workload versus utilization % |
Indicator of cost-effective Cloud workload utilization |
|
Workload type allocations |
Workload size versus memory/processor distribution; indicator of % IT asset workloads using Cloud |
|
Instance to asset ratio |
Indicator of % and cost of rationalization/consolidation of IT assets; degree of complexity reduction |
|
Ecosystem – optionality |
Indicator of number of commodity assets, APIs, catalog items, self service |
|
Timeliness |
The degree of service responsiveness; An indicator of the type of service choice determination |
|
Throughput |
The latency of transactions; The volume per unit of time throughput; An indicator of the workload efficiency |
|
Periodicity |
The frequency of demand and supply activity; The amplitude of the demand and supply activity |
|
Temporal |
The event frequency to real-time action and outcome result |
|
Experiential |
The quality of perceived user experience; The quality of User Interface (UI) design and interaction – ease-of-use |
|
SLA response error rate |
Frequency of defective responses |
|
Intelligent automation |
The level of automation response (agent) |
|
Revenue efficiencies |
Ability to generate margin increase/budget efficiency per margin; Rate of annuity revenue |
|
Market disruption rate |
Rate of revenue growth; Rate of new market acquisition |
|
Speed of time reduction |
Compression of time reduction by Cloud adoption; Rate of change of TCO reduction by Cloud adoption |
|
Optimizing time to deliver/execution |
Increase in provisioning speed; Speed of multi-sourcing |
|
Speed of cost reduction |
Compression of cost reduction by Cloud adoption; Rate of change of TCO reduction by Cloud adoption |
|
Optimizing cost of capacity |
Aligning cost with usage, CAPEX to OPEX utilization pay-as-you-go savings from Cloud adoption; Elastic scaling cost improvements |
|
Optimizing ownership use |
Portfolio TCO, license cost reduction from Cloud adoption; Open Source adoption; SOA re-use adoption |
|
Green costs of Cloud |
Green sustainability |
|
Optimizing time to deliver/execution |
Increase in provisioning speed; Reduced supply chain costs; Speed of multi-sourcing; flexibility/choice |
|
Optimizing margin |
Increase in revenue/profit margin from Cloud adoption |