Moving to the cloud promises to help companies reduce costs, increase security and become more agile. However, despite these worthwhile benefits, moving workloads to the cloud still needs a strong business case, just like any other major IT project.
A conversation with my CFO at a previous workplace still rings in my ear, “Why would we want to migrate to the cloud? How much money will it actually save us?”
These are exactly the sorts of questions that should be, and often are, asked when you are trying to justify an investment that doesn’t result in a direct revenue increase.
In order to examine the complexity of a cloud business case, it is helpful to categorise some of the common drivers for migrating to, or using, cloud services:
- Significant IT event: end of a data centre hosting agreements, software licensing audit showing under licensing, out of support hardware or software, addressing DR or BCP needs or business looking for a lower IT spend.
- Major business event: business merger, divestment or a business purchase.
- Business Competitiveness: need to create new products fast, collaborate more with customers and suppliers, location independence and field force requirements, multilocation product development teams.
A cloud business case related to a “major business event” is often driven by lack of internal IT capacity or resources, a need for data separation and usually by a time-restricted legal framework. It is not hard to make a business case in these scenarios, given that there is a higher cost if nothing is done.
“Business competitiveness” business cases are usually supported directly by the business, and often cloud implementation will be a potential deployment option. In most cases, given the need for rapid implementation, lower initial infrastructure costs, agility and potentially scaling the product beyond its first phase footprint, makes cloud a clear winner.
A word of caution, however, many business-driven cloud projects tend to become financially unattractive over time as they usually ignore the costs associated with cloud readiness, such as connectivity, security, operations enablement, and handover. Therefore, having a cloud strategy in place to address these areas is key, this will help create a shared cloud vision and a cloud-first culture which is just as important as the method of implementation- you can read more on this here.
This article will focus on what you should consider when writing a business case for the first category, where the IT department knows that the long-term benefits of cloud far outweigh other options. However, given the change is often perceived not to have a direct financial return, it represents a much harder sell to the CFO.
The first step is to ensure you start early and allow plenty of time for a proper debate, building a strategy and giving sufficient time to commission the necessary infrastructure needed in your chosen cloud platform for your workload migration. Having these types of conversations early and having a strong strategy in place will ensure you are in a good starting position for creating your business case and will help overcome the other challenges you will face along the way.
There are a number of challenges that most IT departments will have to overcome when building a positive financial business case. To help overcome these it may be useful to create a cost risk-based business case to address the main concerns of the business. In my experience within the commercial sector, especially with federated organisations relying on a shared IT department, this is rare, as the cost risk also sits with the IT department. However, if risk-based business cases are acceptable in your organisation, scenario-based risk estimates like the ones below could be used.
- Assuming one DR event in a year, and loss of 48 productive business hours: £ XXX
- Assuming three-yearly audit corrections with an expected fine: £ YYY
- Assuming failure of 5% of the legacy hardware increasing by 5% year on year and outage of T hours at a cost: £ ZZZ
Whilst this is helpful, it is not going to be enough. When building out your business case I would recommend including the following key cloud differentiators as a comparison against purchasing infrastructure:
Capital expenditure: opportunity cost of capital, use typical models such as NPV (Net Present Value) to compare the true cost of paying upfront.
Rightsizing: cost savings for anything new, by sizing as small as possible and then paying for growth. Also, in my experience, there are almost 30 to 40% of savings to be gained by rightsizing compute and storage when migrating to cloud.
Licensing: expensive licenses can be swapped out for pay as you go models.
DR: lower costs by not having a cold standby.
Upgrades: reduce upgrade effort costs by using managed images or other native services.
Hardware maintenance: costs are already built into cloud run charges.
Dev & Test: having these environments only operational when you need them can help reduce run costs by as much as 40%
Archiving: utilising slow access storage which costs a fraction of high IOPS storage.
Infra builds: spinning up and tearing down environments can be automated using native tooling, reducing effort significantly.
Cost of cooling, facilities and networking: these are already built into cloud costs.
Cloud vendor support: depending on your cloud consumption levels, there is likely to be significant financial support available from your cloud supplier to cover costs of migration and help with training.
I have conducted many multi-year total cost of ownership (TCO) comparisons, and it is clear that the hardware costs over five years for in-house infrastructure, with all the supplier discounts applied, is roughly the same for equivalent cloud consumption. However, once some of the applicable cloud savings described above are applied, cloud will show as a very favourable TCO option.
For legacy servers, whilst the potential cost savings are even greater, the cost of migration will be accordingly higher. Clarity on the expected lifespan of these services and how they can be rationalised as a part of the migration will help in building a positive business case. The use of entirely SaaS-based tools such as Office 365, if already done, can be used as great examples of how cloud-based installation can reduce costs and increase productivity. Moving to an OpEx IT infra cost model from CapEx is likely to be a significant change for the finance and IT department, but it will remove the need for expensive upfront investments, replacing them with predictable monthly fees – a big benefit to the business.
Fully understanding the business driver for moving to the cloud, having early conversations and showing risk will all help with building a positive business case for moving to the cloud, but ultimately it hinges on your ability to show how it represents a step in the right direction for how IT will be done, and at the same time showing significant cost savings.
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