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3 Ways to Justify Cost Savings for an Enterprise Move to the Cloud

  
  
  

Cloud Technology is providing enterprises with new opportunities to cut costs and improve productivity.  In a recent survey conducted by KPMG (Of the Big 4 Accounting Firms), 75% of total respondents said they needed to show a cost savings to justify an enterprise move into the cloud.  The survey also revealed that some companies have allotted more than 20% of their 2012 IT budget to Cloud software and services.

3 areas the cloud will provide enterprises with cost savings opportunities:

    • Labor

    • Software

    • Hosting


The opportunities are made possible by the positive impact that cloud solutions are having on:

    • Automation

    • Virtualization

    • Standardization



Labor
Some estimates show that 67% of global enterprises' IT budgets are allocated to labor with 40% of this budget dedicated to application development and maintenance.  Specifically,  a 2010 IBM internal study of its own distributed infrastructure showed labor to be over 60% of the total operational cost per year.  Cloud technology will decrease the necessary person-to-server ratio over time as more applications begin running on automated platforms in the cloud.  With IT labor spend in excess of 60%, as IBM referenced in their findings, comes the biggest opportunity for cost reductions via increased capabilities of automation and decreased labor dollars earmarked to manage the infrastructure.

Software
The average enterprise has hundreds of applications making software the second largest expenditure for enterprise IT budgets at approximately 16%.  The increased accessibility of software through enhanced virtualization allows companies to leverage a pay-for-what-you-use model and reduce overall software licensing and maintenance costs.  By utilizing cloud based solutions, what was once a previously fixed cost can now be absorbed as a variable cost to be strategically optimized over time.

Hosting
As the complexity of the enterprise grows, so too does the need for a more powerful hosting infrastructure.  It is estimated that hosting accounts for 8% of the typical global enterprise IT budget.  Enterprises are now presented with an alternative to the traditional, fixed, capital expenditure (CAPEX) model that has been so common for enterprise hosting spend previously.  The new integration of public and/or private cloud hosting, will offer the enterprise an operational (OPEX) pay as you go model that can also(software) be absorbed as a variable cost and optimized over time.  The enterprise could also experience a reduction in power and cooling costs due to the increased efficiency in the use of the on site IT infrastructure.

It was only a few weeks ago when Warren Buffet invested $10.7 Billion into IBM, and rationalized the move by saying, “It’s a company that helps IT departments do their jobs better.”

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It is this understanding, of the inherent value of helping IT departments do their jobs better, that makes the enterprise adoption of the public and private cloud a question of “when” and not “if”.  Given the tumultuous economy, and the advantageous cloud technologies, the opportunity to justify such a move lies not only within cost reduction benefits, but also more efficient time-to-market and increased speed at which decisions can be made and executed upon.

Warren Buffet invested in an enterprise that helps IT Departments do their job better because he understands the long-term value of a successful and efficient IT department.  The question is, will your enterprise invest in the Cloud to help your own IT departments do their jobs better and realize the long-term cost savings?

What other opportunities for cost savings has a move into the cloud provided you with?



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*Noted Sources:
Reducing IT Operational Costs with IBM Power Systems Cloud Solutions

KPMG's Global Cloud Pulse Survey





This work is licensed under a Creative Commons Attribution 3.0 Unported License
Creative Commons License.

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