What Are The Economic Benefits Of The Cloud?

A Cloud based solution delivers many economic advantages for the businesses.

• Min CapEx on IT Hardware

Organizations can greatly reduce the hardware expenses, as they do not have to invest on any hardware pertaining to cloud solution. Cloud service provider is responsible to procure and manage all the required hardware.

• Pay-Per-Use

In cloud-based solutions, the organizations are charged based on pay-per-use model; there will be no hidden cost involved. The more you use the more you pay, these expenses are considered as revenue or operational expenses in nature.

• Few and Lower Skill IT staff is Sufficient

Organizations are free from hiring a large number of IT staff to maintain their servers, as the hardware is maintained by the CSPs itself, they can easily manage their in house hardware with very minimal IT staff.

• No Hardware Changes for Scaling Up or Down

No additional IT hardware is required. When you scale up, or scale down, it is very easy and quick to scale a cloud based solution.

• Disaster Recovery (DR) Site is not Required

As most of the cloud service providers are offering disaster recovery and business continuity as a part of the organization cloud migration services. For most of the small and medium scale industries, these services are sufficient and they do not have to invest in a DR solution separately. However, few of the large-scale industry, not really rely on the DR and Business continuity solutions provided by the CSPs, they would rather look security in a larger scale.

Principles Involved in Cloud Economics

There are two primary principles involved in cloud economics, they are economies of scale and global reach.

Economies of scale:

Cloud Service Providers (CSPs) allow the organization to hire computing resources at a lower cost and allow them to make use of shared resources, by this they can substantially have cost savings by avoiding CAPEX costs for buying their own infrastructure. The pay-as-you-go model is a great opportunity for the organizations to pay for the resources which are actively in use and they have the flexibility to scale up or scale-down the services at any point of time.

Global Reach:

Cloud computing facilitates organizations to operate from anywhere from the world, and to spread their global reach. This helps businesses to gain substantial savings, as it’s no longer necessary to set up servers in house on-premises, they can be placed anywhere in the world and lot of labour cost will be reduced in setting up the infrastructure. IT teams will not have to spend time maintaining complex hardware.

Other than cost savings and tremendous efficiencies, business agility is another economic benefit of cloud computing. Organizations that opt for cloud tend to have faster application deployment and can ramp up computing power and storage as per their demands.

Cloud Economics - Top 3 Concerns for a Valuable Migration

Cloud migration is not about merely shifting the applications and data from On-Premises platform to the cloud platforms. The cloud migration process is complex, and organizations need to build new competencies to be a “cloud-first” environment. It also involves companies to create an overall framework that describes the Cloud journey and related ROI. This framework allows IT leaders to take timely and risk-aware decisions pertaining to cloud migration, it also gives a deeper insight into the economic bearing of cloud migration. Cloud economics framework helps CIOs and CFOs to have clear visibility on cost reduction in line with increased productivity and agility.

1. TCO Analysis

Creating a base level TCO model is an essential step during the pre-migration stage, this will help organizations to measure various cost-saving opportunities that Cloud would bring and to calculate the value of success once you start moving to the Cloud. In pay-per-use models, organizations often underestimate the costs connected with cloud migration and usage, these remains as unpredictable costs.

TCO (Total Cost of Ownership) defines all the direct and indirect costs such as data centre, maintenance and support, application development, network, operations, and BC/DR. A cloud TCO determines the actual costs that have to borne by the organizations after moving to the cloud. The TCO analysis directly compares the on-premise infrastructure cost with the costs that will be incurred when moved to the cloud. It also provides a narrow view of the economic impact of migrating to the cloud.

2. 'Indirect' Savings and Business Agility

Direct Saving (Hard Savings) and Indirect saving (Soft Saving) are two types of savings that need to be quantified while evaluating the cloud. Hard savings are nothing but the direct savings that are easily quantifiable such as storage, software, hardware, operational costs, and resource cost. Soft savings are difficult to accurately estimate, in this context, there are ample hidden savings in terms of ability to align new opportunities, enhanced customer satisfaction, reuse of cloud services, and increased developer productivity.

Business agility is one such value add for the organizations which are undefined. Cloud computing and business agility have a direct link, effective risk management, faster revenue growth and long-lasting cost reduction are the key benefits of agility.

3. Beyond the 'Traditional' CapEx v/s OpEx Debate

In order to evade making any ‘irrational’ decisions, IT leaders not only assess the hard savings and soft savings but also consider the ‘blind spots’. Some of the major blind spots that require consideration to define substantial value for the organizations are; no proper analysis on the Timelines, no or limited knowledge of technologies and lack of full dependency plan.

0dscape, and other transformation costs such as migration planning and execution, talent re-skilling, application development and lock-in periods.

Mounika Raghavarapu

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