Is cloud computing really that much cheaper than on-premise?

Is cloud computing really that much cheaper than on-premise?
Keith Bates has been Chairman of the Cloud Computing Centre since its launch at the beginning of 2010. Formerly Chairman of ESG Group, he has been at the forefront of the technology industry for over 25 years. Keith is driving The Cloud Computing Centre’s financial and technological future and is responsible for the development of its long term strategy and planning. Prior to ESG Group, Keith co-founded Concept Integrated Systems, the company that developed the Concept Agency Management system which is today widely recognised as the leading advertising and media agency management system deployed by more than 140 of the top tier communications companies. Prior to this Keith held a number of senior management positions in software and hardware companies including Unisys and NCR.

Before signing any cloud computing contract, or indeed, renewing his on-premise IT agreement, the CIO should sit down with his CFO to clearly identify and understand the total cost of the IT department to the business, and compare his current solution to a cloud-based alternative. And to complete this cost justification process, the CIO must look at each of the following areas:

The IT Crowd

Whilst a company’s employees are its biggest asset, they are also its biggest cost. And if a business employs a five-strong IT team, when arguably only two are needed, the remuneration required to pay the other three members of staff is simply money down the drain. Generally speaking, up until now, the IT department’s sole responsibility has been to maintain the organisation’s infrastructure. And whether that be to make sure all of the employees’ desktops are running or to resolve any downtime issues with the servers, infrastructure upkeep has always been a key priority.

But the advent of cloud computing has changed all that. Undeniably, if an organisation is to virtualise its IT infrastructure by moving it to a cloud environment, the maintenance of that hardware is outsourced to a cloud service provider, and the IT department’s time is entirely freed up to concentrate on other aspects of their roles.

The CIO therefore needs to be honest about how much his internal IT team is costing the business, and indeed, if that cost could be better spent elsewhere.

The hardware and IT infrastructure

Running an IT department in-house, the CIO has to not only take the IT hardware and infrastructure purchasing and installation costs into account, but also the ongoing maintenance costs, which can be huge. Think for example of the costs associated with replacing two large servers on-premise: this would require considerable capital, which could affect a business’ cash flow if it needed to replace them unexpectedly. By outsourcing the need for physical kit to a cloud service provider, not only would those costs be massively reduced, but the business would also benefit from access to state-of-the-art facilities which it may ordinarily not have been able to afford.

The location and physical space required

The CIO must also be honest about how much space is required to host a server room – if those servers could be moved to and hosted in a virtualised environment by a cloud service provider, could that space be better used to house more employees that could work to make the business more efficient in its processes? Or even, could the office space be reduced by eliminating the need for an on-premise server room, which could of course significantly bring the business’ overheads down?

The electricity and power requirements

With energy bills at an all time high, the CFO is looking to make power savings wherever he can. Having numerous servers on-premise chews up power like no one’s business – not only have you got to think about the electricity required to keep the servers up and running, but also the cost of air conditioning the rooms to keep the racks cool.

The insurance costs

The CIO must also take insurance costs into consideration: indeed, all on-premise equipment has to be insured, and what about having a back-up plan in place should the IT systems fail? Companies will typically spend hundreds of pounds a year on tape back-ups, a process that is hugely inefficient, time consuming, and not without risk of its own.

Indeed one business that used a tape drive to back up its data lost a substantial deal, worth hundreds of thousands of pounds to the company, after its servers went down and its data could not be retrieved from the tape – a disaster which could have been avoided had the data been stored in a more robust, reliable back-up location. For instance, moving all that data into a virtualised, cloud-based environment, that reassurance and peace of mind comes free of charge, as a full disaster recovery solution can be put in place as part of the agreement.

The true cost of cloud

All of the above factors should be taken into consideration and laid out in a detailed cost justification spreadsheet so that both the CIO and CFO know exactly what their current costs are, and how these could be reduced. One of the most important things to consider is looking at the costings over a three to five year period. It’s no good comparing the first year costs of an on-premise solution to a cloud-based solution, because admittedly, moving to the cloud may require some upfront capital.

But the CIO has to be forward thinking here, and looking at the cost to the business over five years, he cannot deny that savings are to be had by moving his IT to the cloud. Indeed, the vast majority of businesses will achieve a return on investment within three years of moving to the cloud, and one CIO who recently sat down and made this calculation identified savings of £260,000 over three years as a result of moving to a virtualised environment – considerable savings which simply cannot go unnoticed! 

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