Do cloud solutions bring greater savings for organizations? Expectations versus reality.

Not so many years ago, cloud computing projects were mainly at the Proof of Concept (PoC) phase. System migration was either limited in scope or organizations focused their efforts on analyses and getting ready for broader cloud technology adoption. Yet, the last two years have seen development and noticeable progress in this field. A number of cloud initiatives rolled out by organizations have already reached their maturity. Lessons learnt from the first experiences with cloud computing have made it possible to transition to the next phase – optimization.

In my view, decisions to move to cloud have been driven, in the majority of cases, by an attractive vision of cost savings. Additional significant factors at play are innovation, business model transformation, advanced digitalization or willingness to streamline processes. These goals are not easy to achieve, though. Especially for complex organizations. The economies of scale and the new way to deliver and account for IT services, which, due to its effectiveness, was expected to be more cost-attractive, were the driving force behind many organizations’ decisions to move to cloud. Did things go as planned?

Below I have discussed five most frequent mismatches between expectations as to cost savings to be generated by cloud computing and the reality.

1. A simplified business case or its complete lack

The business case is considered to be necessary to win the board’s approval and secure funding for investments. It is primarily aimed to present the financial outlays needed for the initiative to be completed as well as a reliable forecast of cost reductions over time. This way the break-even point may be reached within the planned period, which should be as short as possible. The business case defines the expectations and sets the bar we want to go over by investing in cloud solutions.

Ambitious plans to migrate to cloud swiftly, coupled with superficial analyses do not go hand in hand with the fact that the cloud business case should comprise a comprehensive analysis that requires an in-depth understanding of such four key areas as technology, people, processes and business aspects. Exploration of all these issues comes down to a complex accounting exercise to measure potential savings and gains that may be derived from cloud computing, in addition to skillfully pinpointing them in time. It’s true that cost savings related to infrastructure may be seen relatively quickly. But the financial benefits proper should be looked for in an entirely different place.

So, let’s have a closer look at the savings that may be realized through optimization of technology processes. It’s relatively easy to get caught in a trap of incorrect calculations, which are seriously hindered by the wide array of models to deliver and account for resources (IAAS, PAAS). Other factors at play are the new way services are designed and made available (such as Serverless), licensing considerations or the enormous importance of the need to change the solution architecture so that the promised benefits of cloud may actually be felt. New and complex pricing, discounting and contracting models are the final pieces of the puzzle. Sounds like a demanding exercise, doesn’t it?

A number of organizations realize relatively late that by making use of cloud services without modifying their working methods they will inevitably increase their IT infrastructure spending. Thus, costs may truly be reduced only if the use of infrastructure by applications and delivered systems is changed. Such modernization requires time, investment and, most of all, human and organizational effort, which should also be reflected in the business case so as to arrive at a reliable picture of potential cost savings.

2. A mismatch between cloud budgets and architectural decisions

Cloud strategy development involves high-level decisions regarding the architecture and standards to guide transition plans and support cost estimates. It is at that point that the organization selects specific service providers, application hosting regions, service level availability, CoB plans, database engines, monitoring tools and many more. Any attempts to devise a reliable financial plan which do not take into account the above architectural assumptions are doomed to failure. This is so because all these criteria have a real impact on the accumulated effect of application development and maintenance.

In some cases, organizations need to set up regular reviews and revisions of their architectural decisions or the adopted principles. In the end, cloud computing technology is to support experimenting, learning, learning lessons quickly and testing new concepts. Such changes require drawing up emergency plans as well as budgeting for constant technology development so as to avoid the necessity to secure further funds and, in the worst-case scenario, delays or suspension of cloud migration altogether.

What is more, the planning of and accounting for cloud spending will be different from what we have already got used to, e.g. in the controlling function. Initially, a lot of things will not be possible to predict with high precision (payments for “use” and “consumption”) – thus flexibility must be intertwined with both technology and the organization as a whole.

3. Inevitable hybrid – the migration “bubble” and ubiquitous licenses

The majority of clients using off-the-shelf IT solutions plan to move a substantial part of their infrastructure to cloud within the next 2-4 years. A typical approach assumes that new applications will be developed directly in cloud, and the existing solutions will be tailored and moved to cloud in the meantime. It should be underscored that maintenance of parallel IT infrastructures involves a considerable rise in costs. Some assume that provided with proper training employees will be capable of building and supporting both infrastructures at the same time. They couldn’t be more wrong. Management of the existing infrastructure is already consuming most of their working time, not to mention the necessity to fulfil additional duties relating to cloud services. Cloud is a new, complex world, while preparation of competent teams requires considerable financial resources and time, as well as modification of the existing operating models.

Licensing and contracting are a completely different story as transition from the on-premise world towards cloud requires skillful balancing with the use of the existing resources and licenses or their gradual extinguishing. This exercise touches upon not only financial aspects but also precise planning and making sure that appropriate actions are taken over time – how to plan the migration timeline so as to be able to make full use of what we have paid for, in addition to when and in what quantity we should begin to purchase new services and licenses.

4. Cost awareness of engineering teams

In the world of traditional solutions IT spending was monitored by procurement teams. As far as cloud is concerned, it is infrastructure engineers and application developers that take important purchase decisions – even if they are not fully aware of that at times. An error that is often made during the first migration projects is a lack of adequate controls and processes to monitor and influence cost decisions made by engineering teams. What is more, governance itself will not suffice – considerable knowledge and practice are needed in order for engineers to make informed and safe cost decisions.

5. Insufficient use of pricing and architectural models as well as automation

Cloud is tempting as it offers a wide variety of services, configurations and pricing models to choose from. However, when faced with the reality, we often limit ourselves to the core cloud computing capabilities. I am far from trying to persuade anyone to deep dive and implement the latest cloud framework design and delivery models. But as practice shows, a number of organizations do not undergo even the basic optimization processes, related to reserving infrastructure in advance or selecting resources that are appropriate for the expected workloads. Thus, resources are bought with ease but used only to a limited extent. This is due to a number of facts, such as the lack of knowledge mentioned before, old habits or clear reluctance to experiment and take risks.

It should also be stressed that cloud has been created for automation. It is worth reaching for as early as possible and making every effort to improve it. This way we will not only be able to optimize the use of our resources (and spending) but also deliver and maintain systems more effectively from the purely human perspective – and this also represents a big step towards financial optimizations.

As can be seen, “costs versus cloud” is a very broad issue, which is addressed by separate teams and advisory practices centered around FinOps (financial operations). The topics discussed in this article may provoke a change of thinking and in effect, setting the right course towards cloud implementation financial planning. Cloud solutions themselves may be a source of savings and new revenues. But it’s more about us than the technology itself.

_{Material prepared for publication in “IT WIZ Magazine”.}

Contact:

Marcin Knieć
Director, Consulting, Deloitte Central Europe
Email: mkniec@deloittece.com