Beware Cloud Computing’s Hidden Costs

Cloud service providers can make compelling and simple sales pitches in terms of cost of individual services—$100 per user per year sounds pretty good. But “hidden” expenses can alter a company’s outlook. Costs related to people, processes, and architecture associated with both the transition and the operations require analysis and planning before signing up for a business case based on a move to the cloud. CIOs and other IT professionals are already well acquainted with such expenses, but the challenge will lie in uncovering them in the relatively unfamiliar cloud model and determining accountability for each.

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As companies consider taking the next steps into the cloud, senior leadership will need to explore four key questions to help uncover the hidden costs:

1. What are the viable paths to move (or replace) legacy applications into the cloud?

2. What architectural changes are required to integrate cloud and non-cloud applications?

3. How should we change our technology and operations processes to take advantage of different procurement, provisioning, and management models?

4. How will a private cloud—built for the sole use of one enterprise—give me more flexibility than current hosting or public cloud models? What are the cost trade-offs?

These questions foreshadow a transition from individual cloud-based applications to more complex systems. For example, when a cloud application such as Salesforce.com—which tracks targets and prospects through your business development, sales, and relationships cycles—really takes hold in your organization, the conversation quickly jumps to the “systems” conversation (a customer management system in this example), which prompts other questions:

1. How do I make sure all of the customers in Salesforce.com are synchronized with those in my customer management application, my billing application, and my six product systems?

2. Should I add custom application logic into Salesforce.com to validate customer and company information against my master list? Or should I do it externally and integrate the resulting systems and processes?

3. What kinds of skills and other organizational considerations should I make for the IT staff that support my customer systems?

I’ve used Salesforce.com as an example simply because of its wide adoption across industries, but it is important to keep in mind that the preceding questions should be raised for other industry and enterprise application discussions.

As cloud applications and their underlying architectural platforms become more robust, so too will the discussions around the true costs of the “business systems” that incorporate them. So, it is important to get beyond the usage costs for a cloud service and spend enough time to understand the total costs to migrate, implement, integrate, train, and redesign the surrounding and supporting people, processes, and architecture.

Many companies across industries are still learning and evaluating, and three examples from companies we are working with fall into this category. A financial services company that deals in very small and extremely high-speed transactions is not yet convinced that any cloud players can provide the processing horsepower within their service-level agreements and security requirements. An industrial products company has been taking a measured approach to evaluating new technologies and approaches. In this regard, the company is essentially taking its time to see where the chips fall. A managed IT services vendor is interested in moving some of its in-house help desk applications into the cloud for its clients, and maybe as a more general offering. But again, the company hasn’t moved past “market surveillance.”

The common thread in each of the three examples is that the areas of concern fall into a bucket of potentially “hidden” costs.

So as cloud service providers roll out their sunny proposals, CIOs and their IT departments need to have a clear picture of the overall bottom line—not simply the “cost per drink.” Remember: it’s deceptively easy to get burned on a cloudy day if you’re not protected.

Chris Curran is Diamond Management & Technology Consultants’ chief technology officer and managing partner of the firm’s technology practice. He writes the CIO Dashboard blog at www.ciodashboard.com, and can be reached at Chris.Curran@diamondconsultants.com or @cbcurran on Twitter.

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