Moving to Multi-Cloud: Spotlight on the Business Case
This blog is part of the Moving to Multi-Cloud series, which gives practical advice on how to move your multi-cloud strategy forward.
The Case for the Business Case
Moving to multi-cloud is not free, it requires funding. However, in choosing the right cloud scenarios, the cloud transformation savings will fund itself. To do this, you need to be able to show the value of the solution to IT and the business.This includes the financial impact of the transformation, such as cost savings and ROI over time, as well as non-financial impact, such as higher customer satisfaction and improved perception of IT. Developing the business case for the transformation gives you a tool for advocating and ensuring that the investment is justified. It provides the context, costs and benefits for key decision makers and funders. It can also be a tool for evaluating alternative cloud scenarios to help make and validate decisions.
Measure, Measure, Measure
Determine current state costs
Key to understanding the savings and ROI is to understand and compare the total cost of ownership (TCO) of the current environment, the projected total cost of ownership of the target state as well as what the transitions costs will be, over time and overlapping resources, to get there.
TCO is made up of the following in-scope items:
- 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 current 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 costs which includes whatever management, corporate and executive costs are attributed to the in-scope P&L.
Determine target state costs
The analysis of the target state costs involves the same components as the current state TCO. In essence, you compare (as a cost-benefits analysis) your current costs to what they would be in the future state.
Don’t Forget About Transition Costs
You also need to understand the costs to get to your target state. These transition costs pretty much parallel the TCO components of the current and future states. They include:
- Swing hardware, which is the additional or overlapping hardware that will be needed during the transformation/migration.
- Additional software, which refers to the costs associated with running parallel licenses.
- Additional network connections that may be needed.
- Staff time, both internal and external, 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.
- Additional education and training. This comes at a cost both in terms of costs and staff time.
- Additional support needed in the form of transition services which will facilitate and guarantee success.
Run the Numbers
Once you have the current, future and transformation costs tabulated, you can do a cost-benefit analysis. It is important that when doing the analysis you include the timing and schedules of the transformation to understand the actual impact.For example, a slow transformation will require longer sustaining of the current state costs reducing the potential savings over a set period – typically 5 years. A more rapid transformation will achieve savings sooner but may require a larger investment up front for external services to aid in the transformation.
5 year run rates
Performing a 5-year analysis is best. Most technologies experience total changes within this lifecycle obsoleting the proposed target state. The transformations themselves should be complete within 2 years with the ability to recoup investments and savings over the remaining period.
Net savings, NPV, ROI, payback period
There are various components of the savings and the lens in which we examine them. Net savings, the resulting savings after costs, is straightforward. Because we are dealing with time factors and the cost of funds, CFOs will want to understand that what the net present value (NPV) of those costs actually are. This requires an agreement on the corporate standard rate for the calculation. The ROI is the result of dividing the net savings by the total investment. For example – if there is a projected savings of $47MM over 5 years, but a cost of $23MM to transform, the ROI is 200%.
The payback period is the point in which the level of investment has been passed by the resulting savings. These values are ideal for tracking in a transformation dashboard.
It’s All About Communication
By sharing the business case and associated benefits with key decision makers and funders, you can maintain the level of excitement and commitment from these stakeholders. Developing a transformation dashboard – one that shows actual vs future costs and savings on a monthly basis – ensures this. The transparency helps you to understand what is working well and what might need more attention.
Transforming to multi-cloud when executed appropriately, can result in sizable savings and ROI over time. Defining, measuring, tracking and communicating those results will ensure commitment and enable better decision making.