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Does Anyone Really Know if Cloud Computing Reduces IT Costs?

According to a recent Rackspace survey of 1300 US and UK businesses, 66% stated that cloud computing saved them money (Published on Virtualization Review). While I don’t doubt that cloud computing can save companies money, I have to question whether the survey respondents have their IT Service costs unitized in a way that allows them to compare the cost of on-premise verses cloud services. Until you know how much a workload unit, such as a mailbox, server, or payroll-per-employee costs, how do you know if moving it to the cloud is saving you money?

There are many costs that go into IT operations that are hard to quantify and many times they are spread across the entire IT budget or in another department’s budget. Has real estate, power, generator, maintenance, HR, staffing, management, training, administration, hardware, software, and licensing all been accounted for in the unit price of an IT service?

There are also a lot of financial benefits included in cloud computing that are hard to quantify. Consider the following situations that are routine events in the the life of an IT Manager:

• Your company has been growing and your Exchange server is starting to reach its limits on performance during peak hours of the day. Your only option is to increase the capabilities of the existing server (already maxed in memory and CPUs) or add a new server. The result is a large capital expense for two servers that are only utilized at 50-60% during peak times of the day. Your price per user (Total Cost \ Total Users) goes up dramatically as you add the new server, power it, and maintain it.
• Your company has been consolidating and shrinking the number of employees due to the realities of tough economic conditions. You are stuck with a large investment in capital that is still being depreciated in the budget and no way to reduce your expense associated with the declining work force. Your price per user is increasing as your workforce shrinks . Your CEO is asking you why the IT budget isn’t being reduced in proportion to the business operations reduction.
• Your training budget was eliminated for the year due to expense reduction efforts across the enterprise. You are now stuck with capital projects that are approved without the OpEx budget needed to train your people to deploy and maintain them.
• You have been asked to reduce two people out of your organization. Which systems will you decide not to maintain?

My points are simply that I am a skeptic when it comes to most IT organization’s ability to quantify a cost reduction or increase when moving to the cloud unless they have unitized and benchmarked their costs across IT operations, and that there are a lot financial benefits to the Cloud that are hard to quantify because it is really about business agility and flexibility, as much as it is about cost reduction.

Another way to look at it is that your on-premise cost model only makes sense if you can predict the future for your business. If we could do that with any certainty then we might be better off playing the stock market!

Sources

Schwartz, Jeffrey. (2013). Does Cloud Computing Reduce IT Costs? Retrieved from http://virtualizationreview.com/blogs/the-schwartz-cloud-report/2013/02/does-cloud-computing-reduce-it-costs.aspx.