Financial Justification of the Move to Multi-Cloud
Organizations are looking to move to a multi-cloud environment to realize the benefits of self service, scalability, accountability, standardization and automation. However, many are finding it difficult to get started. They are struggling with how to get corporate commitment, how to justify funding for the transformation, and where to start.
Projecting the ROI of the transformation gives you the information you need to build the business case to justify the transformation, and to help secure stakeholder and corporate buy-in.
How to Determine ROI
Key to determining the ROI is understanding and comparing the total cost of ownership (TCO) of the current environment, the projected TCO of the target state, as well as what the transitions costs will be.
Establish Current and Target State Costs
Measure your current state TCO, and project your target state TCO. Both current and target state costs of all the in-scope:
- Hardware and software that is used to provision the applications.
- The embedded network that the services use. Almost everything today has a network component such as in the fabric that connects us to storage, the LAN components in every server, the connections to the WAN and Internet that connects the services to users and other related systems.
- The costs to maintain the applications in the current and projected environments. You will find this varies due to the level of automation and application modernization.
- The FTEs needed to support the infrastructure will also vary due to automation and modernization.
- Facilities costs which include the more variable power and cooling as opposed to the fixed, less variable real estate costs. Power and cooling will decrease especially when migrating to converged more efficient, right sized environments.
- External, outsourced workloads are the services we might employ for operations, service management, help desk, remote hands, etc. These will be impacted also by automation and modernization. However, they might increase if the strategy is to reduce less reliance on internal resources.
- Overhead includes whatever management, corporate and executive costs are attributed to the in-scope P&L.
Project Transition Costs
The transition costs pretty much parallel the same TCO of the current and future states. They include:
- Swing hardware refers to the additional or overlapping hardware that will be needed during the transformation / migration.
- Additional Software, as with the H/W, identifies the costs associated with running parallel licenses.
- There may be additional network connections that will need to be accounted for in determining transition costs.
- Staff time refers to the internal or external costs for executing the transition. This is an interesting factor in terms of the time impact for executing the transition. We have found that relying totally on internal resources, who also have their “Day Job”, will result in longer transition deliveries. Often, employing outside resources will result in faster execution and at less cost.
- As with many transformations, additional education and training is needed. This comes at a cost both in terms of costs and staff time.
- There may be additional support needed in the form of transition services which will facilitate and guarantee success.
Run the Numbers
Input the current state, target state and transition costs into a cost-benefit analysis. Calculate current and target state IT run rates and develop an investment profile based on the transformation roadmap. From this, the net IT costs, net savings, and ROI can be calculated.
The analysis should also consider the time value of money by calculating the net present value (NPV) of the investments and savings. This will show the potential investment returns in current dollars. All the analysis should be multi-year, typically covering a five-year investment period.
By doing a payback or break-even analysis you can determine how much time, usually expressed in years, it will take to recover the total cost of the investment (including both capital and services costs) and therefore, when the real savings from the transformation takes effect.