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Cloud exposes the true cost of IT

Cloud exposes the true cost of IT

Big ticket capex costs for replacing equipment approaching end-of-life may be well avoided by implementing a new cloud strategy

Scott Stewart, Chief Information Officer at financial management firm Wilson HTM Investment Group

Scott Stewart, Chief Information Officer at financial management firm Wilson HTM Investment Group

If they haven't already done so, it won't be long before most CIOs will be undertaking analysis of the potential financial benefits to their organisations of adopting a cloud computing strategy. You might think the discussion on cloud will focus on security and performance, but from firsthand experience the discussion will very quickly focus on the financials and the total cost of ownership.

When I went through this process the executives nearly fell off their chairs when they saw the end results of our analysis and learned of the promised financial and organisational benefits. So no doubt the word is going to spread and more organisations will be drawn to the cloud, so be ready -- it is coming your way!

My advice is that you be prepared with the answer to the most fundamental of all questions: “What is the true cost of our IT today?” Don’t be surprised if it is a little trickier to establish than you first thought.

When we selected our preferred cloud vendor the first thing they did was send in their CFO. You might have expected an army of other specialists and technologists to arrive, but they knew from experience that the first focus of attention had to be discovering and agreeing on the current true cost of IT. Once you know this figure, it is the baseline upon which you can not only build your business case but also set and agree cost saving targets for your vendor to achieve.

It is all about establishing the baseline of current costs and developing measures and a scorecard for monitoring the success of your cloud strategy as it unfolds.

CIOs would already know the cost of their IT, wouldn’t they?

Most of the cloud vendors I talk to know exactly what their pricing model is and what they will charge for their cloud offering. But it is not surprising that many of the CIOs they deal with don’t have the same comprehensive grasp of what their IT is costing the organisation. Before you can have any sensible discussion on whether cloud computing is a viable option for your organisation you just have to start crunching the numbers. Most good cloud vendors who offer infrastructure, desktop or storage “as-a-service” offerings will charge you an initial set up cost and then on an ongoing basis of “Per User Per Month” (PUPM).

One benefit of the cloud over your internal IT is there is far more transparency and visibility of the costs. So to support your decision making process you will need to discover what your current PUPM cost is today. For us it was a startling discovery and became a big driver for adopting an aggressive cloud strategy.

Isn’t the true cost of ICT actually what my IT budget is?

If you have an accounting system that loves to allocate costs out across the entire organisation then you need to extend your focus beyond your own IT department budget and work out the total enterprise spend for ICT. This sounds very basic and straightforward but it might surprise you just how much ICT spend is out there in your organisation that you are not aware of. If the total outgoings for ICT spend is not in your IT department P&L then you need to do the analysis and capture all the costs.

Getting a list of vendors and payments from your accounts payable system will reveal if your organisation is doing business with any IT vendors that you may not have had visibility of. Not only that, you may discover that the cost of some services in your budget is only the residual amount after some of the costs have been allocated out to other business units.

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