There is no doubt that Cloud Computing technology brings with it enormous opportunities for companies, but its financial particularities need to be well understood.
Traditionally, the IT model was about “owning” resources, whereas in the Cloud, the focus has shifted to “consuming” resources. This paradigm shift means that some companies make mistakes when designing and budgeting their Cloud projects, which limits them from getting the most out of the technology.
Here are some of the most common mistakes:
- Focusing on short-term results while neglecting long-term benefits. In the pursuit of immediate results, many companies focus on the immediate benefits of moving to the Cloud, such as savings on hosting or maintenance costs, while neglecting other longer-term benefits such as the ease of launching new services or the ability to innovate more quickly.
Capturing these longer-term benefits sometimes requires greater investment than the short-term benefits, but it nevertheless pays to take the longer-term view
- Use of CAPEX instead of OPEX. Cloud services are operational expenditures (OPEX) because companies pay only for the resources they use, whereas a traditional IT model uses capital expenditures (CAPEX) that involve long-term financial planning.
Companies therefore need to estimate as accurately as possible when and how much their daily use of Cloud resources will increase and have the operational budget for this, even if they can then reduce it when it is no longer needed.
- Estimating Cloud resource spending based on historical factors alone: As organisations make the leap from the CAPEX investment world of the traditional IT world to an OPEX model of the Cloud world, historical investments become a less accurate indicator of future Cloud spending.
This is a problem when allocating budgets for Cloud migration projects and can result in up to 20% deviation between forecast and actual Cloud spending.
The key to better budget forecasting is to link it to business needs rather than past IT investments. For example, if the company is planning a big Black Friday promotion, they will probably have a spike in demand during Black Friday that they may not have had in previous years.
The same can be said if they are considering a business model change or launching new products that take advantage of the flexibility provided by Cloud Computing.
- Assume that all Cloud services have similar cost savings. The elasticity and scalability of the Cloud is economically ideal for workloads with varying patterns of resource consumption.
However, enterprises sometimes fail to differentiate savings by workload, assuming that the savings from moving compute capacity to the Cloud will be the same as migrating storage when in reality, not all Cloud workloads have the same cost and therefore the same savings versus traditional models.
Simplifying the cost savings model can lead to errors in project quoting.
- Estimate higher than the actual Cloud usage. When building the business case for a Cloud project, companies often assume optimistic levels of Cloud services usage. This over-inflates projected savings despite the Cloud’s ability to dynamically scale resource usage to meet application demand.
High service usage rates depend, at least in part, on an architecture capable of supporting them, and companies’ financial plans are often not aligned with the needs to adapt their service architecture.
- Uploading everything to the Cloud. Some companies make a radical leap to the Cloud, uploading virtually all their workloads, even when it is unnecessarily costly.
There are workloads that can remain in legacy environments without problems because moving to the Cloud does not bring significant savings for enterprises either.
All of these mistakes highlight the need for companies to adapt their traditional financial models when considering a migration to the Cloud, otherwise they risk making the wrong financial decisions.
To get the most out of Cloud services, it is crucial to budget projects accurately and to be aware of the occasions when they do not bring a significant benefit compared to traditional models, which also exist.