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Fewer CIOs running ROI calculations for cloud: survey

Fewer CIOs running ROI calculations for cloud: survey

Intangible business benefits enough to convince boards

Fewer enterprises are calculating the return on investment for cloud computing than ever before, according to a global survey of chief information officers.

The poll of CIOs by ISACA (Information Systems Audit and Control Association) found that 32 per cent of enterprises implementing cloud initiatives do not calculate an ROI. This compares with the 20 per cent in a similar survey run by Information Week in 2014.

The majority of those that do not calculate cloud ROI based their investment solely on business objectives such as enhanced business agility and shifting funding from capital expenses to operating expenses. More than a quarter of these businesses said a lack of a reliable calculation model was a factor in their decision.

More than a fifth of those that didn’t calculate an ROI for cloud did, however, create a business case that included financial outcomes, such as anticipated cost savings from making the transition.

“This type of business case differs from ROI, because the business case financial metrics may not include the specific value proposition from the cloud usage itself and instead, focuses on more business-centric financial metrics,” the ISACA report states.

A similar proportion justified their cloud investment with a business case without explicit metrics while six per cent did not justify their investment before implementation at all.

“Despite the value of calculating cloud ROI, this survey suggests that more enterprises than in prior years are moving ahead with cloud computing without performing this analysis,” ISACA says.

“Potential reasons for not performing ROI calculations include that technology practitioners are becoming more familiar with cloud computing; detailed ROI calculations are deemed unnecessary to validate investment; and nonfinancial outcomes are increasingly seen as sufficient to justify investment, regardless of potential financial impacts.”

ROI do

The majority (68 per cent) of those implementing cloud initiatives do calculate an ROI on their investments.

The most common method for doing so was a hybrid model which took into account both quantitative and qualitative factors. These typically included operational expense impact, capital expenses, change in staffing requirement, business impact (such as agility, market penetration, time to market), transition expenses and time savings for employees. Most use a time frame of one to five years.

The majority of enterprises (35 per cent of those that do calculate ROI) also ran models before and after implementation although a large proportion (29 per cent) only ran the numbers ahead of any implementation.

According to the survey – of 102 CIO-level ISACA members globally – 32 per cent said the actual ROI on cloud was higher than anticipated, 30 per cent said it was lower in reality and 39 per cent said their estimate was about right.

The biggest causes of the discrepancies? ‘Operational expenses higher than anticipated’, ‘Transition expenses higher than anticipated’ and ‘Time savings for employees higher than anticipated’ were each reported by 32 per cent of participants. A quarter said operational expenses came in lower than anticipated and a fifth said capital expenses came in lower than expected.

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