How to determine the real cost and value of your Cloud Solutions.
The first step to measuring the Clouds impact on IT cost is to identify the current capabilities of your IT organization. The difficulty in doing this is that most budget models are rooted in complex technology architectures and a host of other technology driven costs.
Today’s C-level executives are challenged to illustrate how their strategies and methods scale to meet business objectives. When addressing Cloud Solutions this challenge becomes even more difficult, where usage and cost comparisons are necessary in order to evaluate the real cost and value to the business when implemented.
Challenge: Conducting business relevant comparisons of in-house IT capabilities to Cloud Solutions.
The first step to successfully meet this challenge is to identify the current capabilities of your IT organization using a combined budget and activity based approach. The difficulty in doing this is that most budget models are rooted in complex technology architectures that define server costs, network costs, infrastructure costs, IT labor costs, and a host of other technology driven costs. These models are challenged to provide the business relevance necessary for non IT leaders to evaluate and determine the business value of the proposed solution. Far too many of these models present new solution scenarios using only GL asset data and technical terminology, leaving non IT leaders struggling to map this information to the impact on their business objectives and outcomes.
Transforming IT capabilities into business relevant services (commonly called, Business Services) is a vital step, that will allow both the non IT leaders and IT leaders to collaborate and establish a realistic consensus about the impact on business value and outcomes of the proposed solution.
For example, a new Cloud Solution scenario must be discussed at a business relevance level, regarding the involved Business Services. In every IT organization there are also other services required in the fulfillment of Business Services that are not Business Services, but may also enter into this discussion. These services are commonly called “Technical Services”, because of their non-customer facing nature. Here is a simple illustration of these relationships.
Question: How to relate Business Service usage to Cloud Solution pricing model?
To answer to this question you must begin by mapping all services, Business and Technical Services, to each IT consumer of service. Here is a simple illustration of mapping services to consumers of service.
Once this mapping is complete, then the cost of each Business Service can be defined and the usage pattern by consumers of service can be outlined. Knowing these factors provides the in-depth understanding needed to evaluate the Cloud Solution pricing method and impact, when compared to the in-house IT capability it is proposed to improve or enhance for greater business value. This is a simple illustration of key analysis factors.
Question: What is the new Consumer of Service cost impact of the proposed Cloud Solution?
This is the primary question and frequently is often not accurately answered using traditional Total Cost of Ownership (TCO) methods to analyze the impact of proposed Cloud Solutions. TCO calculations measure a number of costs that are useful for many business decisions, yet these calculations often leave out other costs that inevitably require business leaders’ consensus before they can be defined. Traditionally TCO calculations of technology assets, staff resource usage, and other items are fundamental factors. To begin answering the question, about the relevance to the business, requires that additional factors be incorporated in the TCO calculations and impact analysis such as, involved services, service fulfillment strategy, required staff usage (if known), and consumer of service current and forecast usage.
Adopting this advanced cost allocation approach at a minimum incorporates TCO, Activity Based Costing (ABC), consumer of service usage, and IT Service Management (ITSM) methods. Doing this will deliver a true and accurate cost impact per consumer of service of the proposed Cloud Solution when compared to in-house IT capabilities.
We recommend that at a minimum the advanced cost allocation approach, either in-housed developed or purchased, incorporates: