Calculating cloud return on investment should not be oversimplified

As cloud computing continues to gain momentum in the workplace, decision-makers will increasingly resort to using next-generation evaluation tools to determine the hosted environment's alleged return on investment (ROI). While these solutions come from service providers, industry analysts and other organizations, the solutions tend to rely on a single and simple misunderstanding.

A recent InfoWorld report by IT expert David Linthicum highlighted this occurrence, noting that most ROI analysis tools base their calculations on the hypothesis that advanced cloud infrastructure services eliminate hardware and software expenses. Furthermore, because the cloud takes advantage of a pay-per-use model, decision-makers are only required to cough up the costs needed for mission-critical operations.

Although this reasoning sounds appealing, it is often an oversimplification on what is really happening, Linthicum noted. In many cases, these misconceptions have led business and IT executives to make poor, uncalculated decisions associated with selecting and deploying a cloud service. These choices have hindered organizations in a number of ways, beyond making a bigger​financial dent than expected.

Calculating cloud ROI
There is no simple way to assess the cloud's true ROI, as the process requires an in-depth look into activities and what problems are supposed to be solved by the use of the advanced technology. Additionally, decision-makers need to look at the operational benefits associated with the cloud, including how cloud scalability and flexibility have enhanced day-to-day tasks, Linthicum reported.

A separate report by InformationWeek also highlighted how companies around the world are taking an over-simplistic view of cloud ROI strategies.

"The driving factor for many cloud decisions is cash flow," said Jeff Solomon of the CPA firm Levine, Katz, and Solomon, according to InformationWeek. "For many industries, the capital limitations are so dire they're willing to move to the cloud based on a cash flow comparison alone. They simply aren't doing a proper ROI analysis."

If decision-makers take an oversimplified approach to calculating cloud ROI, they may encounter significant trouble down the road, realizing there is a serious gap between their goals and actual deployments. Although the cloud often promises to deliver significant savings, executives should look beyond these perceived benefits and assess how the technology will deliver real advantages, Linthicum noted.

As the cloud market continues to expand and provide companies with new opportunities, taking the right approach to calculating ROI will become even more important.

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