Although still in the majority, the share of companies interested in cloud ROI is declining, according to a survey by ISACA, an international association dedicated to IT governance. Among the causes: the difficulty of measuring costs, as well as benefits.
To estimate the effects of the cloud on costs, measuring ROI remains essential. In effect, this metric provides organizations with an assessment of the true value proposition of the cloud. Calculating the ROI after the implementation of cloud services allows you to confirm that the profit objectives have been achieved, or to identify a gap in the objectives.
However, a study by the ISACA association – an international organization of 3,000 companies of all sizes that provides a knowledge base on information systems – reveals that, despite the obvious interest of the approach, more and more companies are abandoning this calculation. The study cites two main reasons: the incompatibility of measurement with strategic cloud objectives and the lack of a reliable model for calculating ROI.
The expected return on investment of a cloud computing strategy, a criterion less and less studied.
The sample participating in the “ISACA Cloud ROI” survey is clearly aware of the benefits of cloud computing: 70% of the companies surveyed have already implemented cloud services (SaaS for the vast majority, but also IaaS for 49% and PaaS for 36%) and half of them did so natively, at the time of their creation.
ROI calculation in the cloud in sharp decline
The economic approach to the cloud has evolved over time. So while only 20% of companies did not calculate the ROI of their cloud services in 2014, 32% now do. A marked decline in ROI measurement – although there are still two-thirds of ROIsts.
Now 32% of companies do not integrate the notion of ROI into their cloud strategy, compared to 20% in 2014.
But then, what criteria were used by those who shunned ROI to estimate the relevance of cloud investments?
According to ISACA, most companies that did not take this calculation into account before moving to the cloud did so because they considered their objectives to be primarily qualitative: improving business agility, accessibility, fluidity of the user experience…
The justification for cloud investments is not based exclusively onstrictly financial criteria.
Nearly one in two cited non-measurable financial criteria in their motivation. One in five companies felt that the decision to migrate to the cloud was purely strategic, so no specific metrics could be taken into account to justify this choice. So with the disruption of ways of working offered by the cloud, cost saving justifications become redundant in the value proposition of cloud computing.
Even an unfavorable ROI will not hinder the progress of the cloud, if it is integrated into the company’s overall strategy.
Finally, 21% considered the exercise to be impossible because of the numerous financial criteria that were difficult to anticipate, such as the new value proposition provided by the cloud service itself.
The headache of ROI calculation.
It must be recognized that measuring return on investment is not a totally consensual. Companies can use quantitative, qualitative or a mix of both. They can also measure ROI over a wide range of durations.
The respondents in the ISACA study represent this diversity well: nearly 45% have opted for for a quantitative approach, 23% for a qualitative approach and 49% for a mix. From Similarly, a third calculate ROI over a period of 1 to 2 years, while 55% prefer to measure it over 55% prefer to measure it over periods of 2 to 5 years, with a small minority basing it the duration of the contract.
Criteria considered by ROI proponents.
While almost all ROIsts have measured Opex (98%) and Capex (91%) impacts, only one in two have included only one out of two integrate savings on team working time or on so-called “transition” costs into their calculations.
Finally, a third did not take into account the costs related to the new recruitment needs and the expected impacts in terms of economic efficiency: improved agility, penetration rate, time-to-market, etc.
43% of companies that have implemented an ROI calculation did so only before deploying their service, and 6% only after. For the latter, it is logically more difficult to assess the transition to the cloud.
For the others, the results are balanced to say the least. We note three almost equal shares: one third noted a higher ROI than anticipated, another third a lower ROI and the last one did not note a significant difference between the forecast and the actual.
Among the expenses that are often misjudged – both up and down – are Opex, transition costs and employee time savings.
The ISACA study supports the idea that the ROI criterion is less important for IT decision-makers. This phenomenon can be attributed, again according to the Institute, “to a greater familiarity of IT players with the cloud” who may find efforts to measure cloud implementation superfluous. The rethinking of the ROI calculation model, which is too standardized for a wide variety of company profiles, was also mentioned.
ROI applied to the cloud, an outdated methodology? At Lucernys, we don’t think so.
Lucernys has developed a FinOps offering dedicated to cloud computing tooptimize the economic performance of the cloud. Lucernys provides insight into the performance, security and availability of cloud infrastructures, in addition to purely financial analysis. With FinOps lighting, the digital metamorphosis can be mastered.
