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Reaching the Point of Commitment

Rog42

By Roger Lawrence, CTO Stategic Enterprise Services - HP South Pacific

 

This is the final post in our look at the economics of adopting cloud computing in the enterprise. To date we’ve covered:

  1. The Hidden (Tangible) Costs of Cloud Computing
  2. Elasticity and Cloud in the Entperprise
  3. Vendor Contestability
  4. Cloud Hosting Options
  5. Getting off the Cloud
  6. Intangible Costs

In today’s post we’re going to discuss considering when it’s most appropriate to move a particular workload to the cloud.

 

Note: I’m using the term workload, rather than application, to identify a business process that may be provided by part of, one or many applications.

 

For example, a Business Intelligence workload may include multiple, interdependent applications such as: Cognos, SQL Server and Crystal Reports etc. A database workload may support a number of capabilities such as: Data Warehouse, CRM and ITSM Monitoring etc.

 

Dependencies

When considering moving a workload to the cloud—whether transitioning the workload onto IaaS, transforming it to depend on PaaS, or replacing it entirely with SaaS—the first economic consideration are the dependencies.

 

That includes the dependencies the workload has, i.e. authentication systems, operating systems, infrastructure etc. It also includes the dependencies the workload supports, e.g. other applications.

 

An analysis of the dependencies will highlight whether the standardised environment of the cloud will provide critical functionality that the workload depends upon. It will also identify boundaries that the workload will now have to traverse, inter-connections needed and the cost of downtime.

 

One of the first workloads many firms opt to put in the cloud is Messaging. This makes sense because the cost of running an on-premise messaging system is significantly higher than subscribing to a cloud service. Messaging is network aware by definition. It tends to have few dependencies within most organisations, and is a very mature service that has been provided by Service providers for many years. Messaging predates even the commercial Internet, with providers such as CompuServe and America Online.

 

I was intrigued to hear of a European-based bank that transformed from on-premise email to Gmail. Their migration strategy was to run the 2 systems for a month, giving their users 30 days to copy across emails they believe they needed to keep. In other words, they were not maintaining any of the dependencies of the legacy messaging system, not even for migration of users and data.*

 

Capitalised Assets

So you’ve decided your HR system is better in the cloud. Except that you have $3m worth of hardware that is less than a year old.

 

Clearly there is the lost cost of capitalised assets that were purchased to run the workload. These include facilities, infrastructure and one that is often overlooked—software licences.

 

There are 3 opportunities to deal with these assets if you were to transform:

  1. Vendor-buy back. Many vendors, such as HP, will offer to “buy back” hardware assets that need to be replaced. Although this will offset a depreciation, generally speaking the buy-back figure will be less than the unrealised depreciation.
  2. Re-purpose. This is often a viable opportunity for newer assets. Servers can be cycled into infrastructure farms, or used to provide new services.
  3. Sell. There is always an opportunity to sell the assets to other organisations, or to auction them off through sites such as Greys Auctions.

However, if the return on these assets is significantly less than the depreciation, this may influence the point of commitment for this particular workload.

 

Operational Costs

Remember to calculate the operational costs to running the workload for the period of depreciation left on the assets. These operational costs need to include:

  • Running costs
  • Support and maintenance
  • Break/fix
  • Staff
  • Licence refreshes

Opportunity Cost

Finally there’s opportunity cost. This is the cost of the lost revenue from not moving to the cloud. This can be particularly hard to quantify. The benefits of cloud, such as agility, rapid time to market or elasticity can be described in financial terms and used for analysis.

 

Point of Commit

Once you have detailed these costs, you can extrapolate these over a number of years. Then do a similar exercise with transformation and OpEx of the same workload in the cloud.

 

At some point, it will make financial sense to commit a particular workload to the cloud. This will help guide you to your strategic cloud roadmap.

 

Of course every workload will have a different ideal point of commitment. Some workloads you may determine to move early, or late, because of the ideal point of commitment for dependent systems.

 

A Final Word

As demonstrated, adopting cloud computing has a significant impact in the enterprise. You can choose to integrate private, virtual private or public and whether IaaS, PaaS, or SaaS; has a significant impact in the enterprise. It’s important to appoint someone to be responsible for your cloud strategy and roadmap.  They will look at all aspects of the economics of transforming your information systems over time.

 

Next week we’ll begin the next part in this series, looking at Agility as a Business Enabler.

As ever, feel free to comment, discuss, or share. If you have any questions please do contact me.

 
There is no difference between theory and practice, in theory....
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About the Author

Rog42

Roger has been trying to get out of Information Technology since programming COBOL on mainframes in the late '80's. But no matter in which continent he awoke, or whom employed him, his passion to enable people with technology was constant. So now he enables businesses to determine their strategy using the latest technologies like cloud computing, mobility, and big data. HP calls these Strategic Enterprise Services, Roger calls them "another day in the office."

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