Cloud Costs: CIOs Need to Plan Better

Migrating business applications and IT infrastructure to a cloud service has obvious financial benefits: fewer hardware costs and instant scalability, to name two.

But when put into practice, the financial planning for such a sea change has many CIOs lost at sea, according to a new cloud investment survey of 100 enterprise-level CIOs, conducted by the Worldwide Executive Council and Apptio, a maker of IT reporting and analytics software.

While many CIOs plan to invest in private and public cloud technologies in the next year, the survey shows that a majority of enterprise IT decision-makers do not have a strategy for calculating what it costs to deliver cloud services to the business.

Specifically, many CIOs that were surveyed lack financial metrics to track data utilization, recover costs via “chargeback”, and present a “bill of IT” back to the business.

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CIOs will need all of these to determine ROI and build a strong business case for the cloud, according to a report on the survey results.

“Our research shows that while enterprise CIOs remain enchanted by the cloud and the promise of instant scalability and automated provisioning, they’re still struggling to understand the economic drivers behind the cloud decision,” said Keith Muma, Vice President of the Worldwide Executive Council.

Survey data supports this conflicting combination of cloud enthusiasm and poor financial planning.

Some key findings:

• Eighty percent of respondents get some amount of their server infrastructure delivered through a private cloud, yet nearly 90 percent are not charging end-users based on their private cloud consumption (called “chargeback”). This represents a gap in financial transparency and accountability of IT service costs.
• While 64 percent of IT executives believe that tracking utilization levels of virtualized and cloud infrastructures will be “important” or “very important” during the next year, nearly 40 percent said they are not currently tracking these utilization levels.
• 80 percent of IT executives surveyed believe metrics related to cloud would grow in importance over the next year and 75 percent believe there is very high value in accurately measuring the COGS (cost of goods sold) for their cloud-based operations.
• Forty-eight percent of executives surveyed report the cost of cloud services to their business units as a lump sum of all IT costs, while more than 20 percent do not provide any reporting of cloud costs back to their business units.

Presenting the CEO with foggy financial forecasts and incomplete metrics will certainly hamper CIOs chances of getting funding for the cloud technologies, states the survey report.

“As this survey demonstrates, most CIOs do not have the ability to precisely calculate what it costs to deliver IT services to the business,” says Chris Pick, CMO at Apptio. “Without these metrics, they will be unable to benchmark their own services to third-party cloud providers and unable to deliver IT services at market rates.”

The WEC interviewed 100 U.S. CIOs from firms with at least $50 million in annual revenues and representing industries such as financial services, retail, manufacturing, healthcare, technology, media, oil and gas, and government.

Shane O’Neill covers Microsoft, Windows, Operating Systems, Productivity Apps and Online Services for CIO.com. Follow Shane on Twitter @smoneill. Follow everything from CIO.com on Twitter @CIOonline and on Facebook. Email Shane at soneill@cio.com