In my previous blogs we talked about why you would need a business case when moving to the Cloud and how you could allocate your budget. Today, in the final blog within this series I will talk about whether buying on-demand resources and capacity to run your IT has the potential to be less expensive.

3 reasons why Cloud should save you money

Every conversation on cloud I have with CIO and sourcing decision makers eventually turns to a discussion of cost and the assertion that cloud computing is less expensive. From a technology perspective, there are at least three key reasons why a well-run third-party public Infrastructure as a Services (IaaS) provider should be able to deliver compute resources less expensively than a typical internal IT organization:

• Load aggregation. By combining the highly variable compute loads from a pool of organizations, it should be possible to achieve better utilization levels.
  
• Cost of power and electricity. By locating datacentres in areas with low-cost power, hosting and IaaS providers can lower their cost of compute resources. Given that power can often represent 35% of operating costs, this advantage is significant.
  
• Labor utilization. Compared with a typical IT organization operating a Public IaaS platform that is standard and heterogeneous IT infrastructure and delivered in a one-to-many model is much more streamlined, efficient and cost-effective.
  

The key issue however is not the cost of delivering IT compute services as such. For IT buyers, the issue is comparing the price of acquiring a public IT cloud service versus the cost of providing it internally. Pricing is a function of market conditions, seller motivation, and buyer requirements. In mature industries, cost and price are usually highly correlated. The cloud computing market is in a period of rapid expansion, affecting both providers and their service offerings. Pricing varies from very short-term contracts, literally minutes of usage, to multiyear contracts with associated discounts. The scope of the public IT cloud service offerings varies even more widely.

The long-term outlook is that public IaaS has the potential to reduce the cost of IT delivery. However, there is no guarantee, even likelihood that any particular project or application will certainly be hosted more effectively with hosted or IaaS resources. As with most complex technical questions, the answer is a function of many variables. Nevertheless, IDC believes that public IT cloud services will evolve rapidly into a major IT platform, and for that reason, IT organizations should continue to explore new options and applications.

For midsize and larger projects, IDC recommends IT leaders and other business executives rely on the proven business case methodology factoring the relevant components, including direct resource costs (equipment, software, and services), assurance costs (such as monitoring, patching, and maintenance), and indirect costs (including buildings, energy consumption, taxes, and IT management), and comparing them with external options (also fully encumbered with all relevant costs including assurance and IT management).

This is the final blog in a 3 part series on the business case for Cloud.    In addition to the blogs, IDC in partnership with TELUS developed a Cloud workbook based on a 2011 IDC survey with Canadian businesses to determine how they can take advantage of the flexible, on-demand way to access infrastructure and applications via Cloud.  Highlights from the workbook include:

• Use cases detailing how companies of varying sizes across verticals are deploying Cloud
  
• Types of Canadian Cloud providers and their offerings
  
• Key consideration questions to assess infrastructure-based Cloud services as part of your IT strategy
  

You can get full access to the workbook here

Mark Schrutt

IDC Canada

One of the key success factors in moving to the Cloud is developing a robust business case.  The business case provides the rationale, benefits, and costs, as well as the expected results for investments by organizations.

This is the first in a three-part series on the importance of a business case, budgets; operating vs. capital, and expected results of a successful business case.    Today’s blog will cover the need for business case, followed by a deeper dive into how you allocate your budget of operating (OPEX) vs. capital (CAPEX) and finally, how to determine if you are meeting your business case objectives.

Cloud is another form of outsourcing. The discussion of the ROI should follow a similar thought process as outsourcing, contracting out or for that matter many other IT decisions. This starts with the business case. The business case has established itself as the primary tool in sourcing decisions.

The IT business case typically has seven components: Background, current state and options; financial review; risk management; strategic fit; execution plan; and ongoing management. In addition, there are four major steps in developing a business case: scope identification; data collection; market pricing; and contracting.

Not all business cases need each of the steps. At the very least, though, a financial review commonly referred to as a cost/benefit analysis should be done. The cost/benefit analysis is a comparison of the options a company has to support its IT requirements. The benefits of Cloud-based infrastructure (or Infrastructure as a Service, IaaS) need to be clearly identified and quantified to the extent possible. In addition, one-time costs for activities such as transition need to be included. Last, the financial implications of risk need to be woven into the business case. While the risk (which revolves around security and privacy that is frequently associated with Cloud) should be identified and their probability and priority to the organization needs to be assessed, the financial review focuses on the cost of reducing or eliminating such risk. For Infrastructure as a Service, IaaS (which are virtualized servers, storage and networking hardware delivered as a service) examples include the cost for data replication, mirrored sites and any cost differences for in-Canada solutions that address potential risk and concern.

Regardless of whether a full business case or cost/benefit analysis is done, the exercise really starts with a discussion between the business and IT. The business case is heavily dependent on communication between management, IT leaders and sourcing decision makers. These discussions should focus on a common understanding of the company's future direction and what will be required from IT to meet the corporate goals. These conversations will help form the scope of infrastructure services being considered for the Cloud.

Cloud is one option. And within IaaS there are various choices between Public and Private models. While Public IaaS offers many benefits, such as potential cost savings and the ability to scale, it does provide somewhat limited options on how infrastructure resources can be configured. Public IaaS is a one-to-many model and customization comes at a price. Public IaaS also has to be managed, whether by the service provider or internally. These costs have to be addressed in the ROI calculation. Cloud also introduces the discussion of operating (Opex) vs. capital (Capex).  My next blog will discuss this in more detail.

In the meantime, is your company thinking about moving to the Cloud but you don’t know where to start?  Do you think a business case would be the first step or have you done one already?

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This is the first in a 3 part series about the Business Case for Cloud by Mark Schrutt.  Director, Services & Enterprise Applications.  IDC Canada

Cloud computing is gaining broad recognition as being the way IT services are delivered going forward.  The key advantages that cloud computing offers compared to current IT approaches are flexibility and speed.

What is Cloud Computing?

“Cloud computing enables individuals and businesses to use computer programs and resources over the Internet."

While individuals and businesses have been using the Internet and visiting websites for well over a decade, cloud computing dramatically expands it to the point that users can run all their programs “in the cloud” and instead of buying and installing big computers in the home or business, they can simply rent computing power from a service provider, just like buying electricity from your local hydro company.

With the ability to deliver IT services in a way that organizations can add resources as needed, cloud computing allows for greater ability to support a growing user base, adapt to increasing or cyclical business activity, and react faster to market opportunities. All this with significantly higher efficient use of capital and a resulting lower cost per unit of IT.

There are three fundamental avenues for cloud computing to deliver these benefits.  These are described in the industry as three layers: Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS).  Each one addresses a different aspect of IT and is geared towards a distinct set of users and their needs.

Software-as-a-Service (SaaS)

SaaS is predominantly geared towards the end-users - your employees.  It enables users to quickly access standardized business applications, from e-mail, word processing and spreadsheets to customer relationship management tools and enterprise accounting programs, from anywhere via a web browser.

Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS)

IaaS and PaaS layers are geared towards your technical staff.  IaaS enables IT departments to rent computing power and sub-system components such as storage capacity on an as-needed basis.  This capability is particularly useful when the demand for computing capacity is seasonal or needed for relatively short durations, such as projects (e.g., oil exploration or customer analysis projects), developing and testing new programs, or to function as backup systems in case of system failures or disasters.  IaaS provides effective alternatives for small and medium businesses to run their systems in a hosting company’s data center  rather than having to invest in their own infrastructure. This includes computers and the supporting capabilities such as redundant power supplies and cooling.

PaaS provides system and application developers an accelerated approach to write programs by enabling access to pre-built program libraries or functions such as databases through special commands called Application Program Interfaces (API), which in turn, automatically deploys the programs.

What it means for business

The common theme behind all three layers of cloud computing is that from the business buyer’s perspective, each layer of service can be accessed independently, so that the business can get just what it needs without having to become entangled in  all the other components.  This greatly simplifies and accelerates IT deployments, leading to lower cost and a concrete way of  aligning IT with business needs.

Underpinning cloud computing are cumulative technological advances over the past 10 years or more, including increased network speeds, robustness, multiple access methods from wireless to wireline, extensive use of virtualization techniques, and advances in computing hardware power.  The confluence of these technologies makes cloud computing possible in a cost-effective and pervasive manner that is transforming the IT industry today as is evident in many publications, from the leading daily press to the Costco member magazine.

Businesses need to plan now to embrace cloud computing to their advantage.  This is a broad topic that will be discussed further in upcoming articles.  As a starting point, the first step is for both business owners and IT leaders within the company to understand the potential of cloud computing to reduce their costs while allowing flexibility and growth. This is the opportune time for businesses of all sizes to review the different layers of service from SaaS to PaaS to IaaS, and examine  how the IT challenges – both current and future - can be addressed through the “cloud”.

Join the conversation!  Tell us what your thoughts are on cloud computing.