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Squeezing savings from the cloud

Determining whether cloud services will pay off is an extremely complicated process. Here's how to compute the ROI.

By Nancy Gohring, Computerworld
April 22, 2013 06:27 AM ET

Computerworld - The key to earning a positive return on investment when adopting cloud services -- including software-as-a-service and infrastructure-as-a-service -- is carefully studying costs and benefits to ensure that such a shift will pay off.

Sounds like many of the other IT projects you've shepherded, right? But it turns out it's incredibly complex to determine whether a move to the cloud will pay off for a given application. When done in haste, that analysis can lead companies to adopt the cloud for the wrong reasons, leaving them with higher costs or an inferior product when compared to an on-premises installation.

The good news is that despite all the hype around the cloud, it appears that many businesses recognize the dangers and are proceeding with caution.

The cloud is "not a silver bullet. It's not the right answer for every situation," says Casey Coleman, CIO for the General Services Administration.

As the first federal government agency to deploy a cloud-based email service agency-wide, the GSA didn't have a road map to follow, she says. So in May 2009, it launched an effort to thoroughly examine its current costs and the projected costs of the cloud service.

"It is the case that it has to be well thought-out and methodical. This is an IT project like any other. You have to plan for change management, promote user awareness, ensure cybersecurity in contractual terms, like with any IT project. If you don't approach it in that manner, you might have a different experience," Coleman says. "The promise of cloud computing has been borne out in our experience."

When the GSA adopted Google Apps for email in July 2011, it was able to realize added cost savings by also transitioning non-email systems that were attached to its legacy email system. The agency had been using Lotus Notes for email, plus Domino for workflow apps. As part of its review of adopting Apps for email, the GSA took a hard look at the Domino apps. "We ended up reviewing those apps and eliminating most of them," says Coleman.

The GSA had 2,000 apps in Domino, ranging from small databases to more substantial workflows. It got rid of all but 500 of those, with many consolidated and reworked. Cutting so many apps meant that the GSA could then turn off 300 in-house servers, Coleman says.

Those cuts plus others enabled the GSA to project that it would save $16 million over five years by moving to Google Apps for email -- and to date that estimate is proving to be accurate, Coleman says.

Not every transition to the cloud will save that kind of money, but closely examining costs and benefits may reveal that the cloud makes sense even if it doesn't impact the bottom line.

In 2009, when Northern Kentucky University switched from an on-premises installation of Exchange for student email to Microsoft's hosted offering, known then as Live@edu, it didn't save money as a result of the change. But the university gained value because the service allowed for easy integration with smartphones and online storage with Microsoft's SkyDrive service. "Even though the costs were flat, it provided more services to students," says Tim Ferguson, CIO at the university.

Just Say No -- Even Temporarily

Northern Kentucky University is also in the midst of a transition to using virtual desktops rather than physical systems for its computer labs, and it has been turning down vendor offers that just don't make sense economically, hoping that still-to-come products and pricing models will eventually meet its needs.

The university decided to approach the project in "baby steps," by running the virtual desktop software on premises with the idea of transitioning it to a public cloud later, says Ferguson.

About 18 months ago, the university did trials of virtual desktop software from a few vendors, all hosted in-house. The systems didn't meet expectations in terms of either price or performance, so the university declined to implement any of the vendors' offerings. "They were surprised. We said, 'Here it is in black and white. You'll cost us more money. The ROI is not good enough. Come back to me when you can solve it,'" Ferguson says.

Since then, the university has deployed VMware's View virtual desktop software in-house and is about to start trials running the software on Dell's public cloud, and possibly others. Ferguson expects to have transitioned all of the university's labs to virtual desktops hosted in a public cloud by 2014 or 2015, and he expects that move to cut costs by about 30%.

The university closely tracks costs in order to be able to present current expenditures to vendors. For the virtual desktop project, Ferguson knows how many staff members support the current implementation, what the hardware costs and how much work is involved in doing things like deploying patches. He also knows when peaks and valleys in usage occur -- and that's important information that could help the university find savings in a move to a public cloud.

The data comes in handy when working with potential vendors, he says. "If I clearly articulate what it costs today, if they can't save me money, why do it?" he says. "If you can't articulate that, it's kind of hard to ask a vendor to do something for you."

One way that Northern Kentucky is making sure cloud services save money is by pushing its vendors to offer true usage-based pricing. Many SaaS vendors that Ferguson has looked at try to charge on a per-seat basis. But that model doesn't make sense for a university that has slow times during the summer and holiday breaks. At peak usage, per-seat pricing would save the university money, but on average, because of the valleys, that model often ends up costing more than running apps in-house.

The Calculation

To try to figure out the ROI of any of its prospective cloud projects, Northern Kentucky starts with an ROI calculator and research from Gartner, adapting it for the university's own special needs.

For instance, Ferguson has strict privacy requirements since many cloud services used by the university handle students' personal identifying information, including Social Security numbers. NKU includes privacy in its ROI calculation by subtracting value when considering a vendor that doesn't seem to grasp the university's privacy requirements, he says.

Originally published on www.computerworld.com. Click here to read the original story.

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