How to Calculate True ROI on your Cloud Investment

Return on investment(ROI) is an essential measure to gauge the outcome of any technology investment. This includes investments in cloud computing. Traditional resources such asphysical servers and computer equipment lead to significantcapital expenditures, but in the long run, the operational expendituresof these investments can be predicted and controlled as the hardware is owned and maintained by anorganization. However with cloud based resources, there is no significant up-front capital expenditure and the bulk of the investment goes directly to purchasing a fixed amount of resources on an annual or monthly basis, typically via a subscription model. Such an investment not only adds a great dealof value to businesses’ bottom line, but impacts ROI.

Technologyconsulting experts provide software tools that evaluate ROI metrics for cloud solutionsby analyzing the resources used, money spent, and the overall performance improvement. These metrics can help organizations determine the investment need and financial impact of migrating to the cloud.

Here area fewof the basic and widely accepted ROI metrics which can be easily calculated for investment in cloud resources:

  1. Control over expenditure or cost
  2. With cloud resources, a business can increase or decrease the amount of money spent on various resources with great ease. A return on investment factor for expenditure control can be defined as:
    (Cost of traditional resource maintenance – Cost of cloud resource maintenance)/Investment
    A high value of the above metric indicates a high return on investment. A negative value can occur when a company that uses numerous interlinked applications tries to move to the cloud. However, in the long term, the value add from cloud services typically makes up for this expenditure.

  3. Dynamic usage
  4. Anorganization’s IT resource needs can vary depending on the number of projects that are in progress. As a result, many companies have dynamic resource requirements. With traditional infrastructure, it is essential to know the limits of your current resources to accept the appropriatenumber of projects and maintain business efficiency.  Also, with traditional infrastructure, a buffer zone must be maintained to meetsudden peaks in demand. With cloud, resources can be easily varied to allow for increases or decreases in requirements. This dynamic usage ROI factor can be calculated as:
    (Equivalent cloud resource revenue – Physical infrastructure resource revenue) /Investment cloud)

  5. Performance
  6. Performance metrics play a key role in calculating the return on investment ofcloud solutions for any organization. To assess this metric, you must consider the access time of resources. The performance ROI factor can be calculated as:
    (Access time on traditional resource – Access time on cloud)/Implementation time on cloud

ROI and savings

ROI metrics can be calculated with the use of various software tools. Such metrics are considered by many as hard ROI metrics and not the actual representation of true ROI forcloud. Hard ROI metrics represent the return in actual hard monetary terms and calculate direct cash savings in the operation of business. Many experts argue that monetary savings does not directly correlateto increase in value, however the value of cloud resources can be partly determined by the improvement in customer satisfaction levels, ease of business operations and other such “soft” factors.

Measuring true ROI

As mentioned above, improvement in other aspects of business also contributes totrue ROI.For newly established organizations that use the cloud for all their service needs, calculating ROI is straightforward, since there are no migration considersationsand other related expenditures to consider. For organizations that have several offices and operate a huge number of applications, ROI considerations are more complex, since migration and restructuring costs must be taken into account. Although a hard ROI factor can be calculated with various accounting tools, measuring true ROI for these businessesis more involved.

The value of using cloud based resources is often cited as true ROI. This is because there are many advantages of moving to the cloud. The time required for migration and the ease of use of cloud resources are important factors that influence the value of cloud services. The advantages of cloud include automatic system updates and maintenance, low downtime, less startup time, better energy efficiency, decreased need foroffice space and more control over resources. Also, the scalability of resources the cloud provides makes it more attractive to small businesses and startups thathave dynamic resource requirements.

This article has been contributed by Silicus Technologies (www.silicus.com), a leading provider of Technology Consulting and Software Development services.

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