Is the Cloud Really a Financial Benefit for Your Business?

As more and more companies—including the NJ businesses we serve—move their computing to the Cloud, the question of whether or not the Cloud will be financially beneficial often arises.

The answer is that Cloud computing can indeed benefit your business from a financial standpoint … depending on your particular situation.

Because every business is unique, it’s important to do a thorough financial and use case analysis before making the decision about switching to a Cloud solution for your business. Here are some factors to consider as you discuss this with your managed IT services provider.

Total Cost of Ownership (TCO) – Total cost of ownership is the asset’s initial cost (the capital expense of a purchase) plus its ongoing operational costs. The lower the total cost of ownership, the better the value in the long run.

Most Cloud services cost a monthly fee per license which works out well for small businesses. However, this license fee adds up quickly and becomes expensive for mid-market and large businesses with dozens of applications and hundreds or thousands of users.

When comparing the TCO of a Cloud server vs. an on-premise server over a span of 5 to 7 years (our recommended lifespan for servers), the cost of running the on-premise server is often much less for businesses with more than 50 employees. However, if the lifespan of a server were limited to only two or three years, then the Cloud server would make much more financial sense.

That said, other elements besides company size factor into the server vs. Cloud TCO analysis. These include the direct and indirect costs of disaster recovery, mobile access, and whether or not your organization already has an existing on-premise IT infrastructure that is suitable. There is no simple formula for determining TCO but your managed IT services consultant should be able to present options specific to your business.

CapEx vs. OpEx – Capital expense (CapEx) vs. operating expense (OpEx) is another factor that plays into the Cloud server decision—the upfront capital expenditures for physical resources that must be amortized over the liecycle of the equipment as opposed to the operational expenses that are accounted for as they are paid, such as for software as a service (and often paid on a monthly basis).

Most businesses with less than 20 employees prefer the OpEx as-a-service model bolstered the agility and mobility that Cloud computing offers. But for many established mid-market and enterprise companies, CapEx may be preferable, especially when you factor in the tax credit from depreciation on your hardware, a value that is not to be overlooked for significant expenditures. This consideration also goes hand-in-hand with your total cost of ownership analysis, factoring in the lifespan of hardware/infrastructure.

At your service — demand, capacity and applications in an “as-a-service” world. Aside from buying, configuring and deploying hardware, decision makers must also consider their companies’ computing demand, the apps they are using, and the expenses related to scaling up or down depending on their future needs. As-a-service comes in a variety of models:

·  Infrastructure as a service (IaaS) provides the foundation for Cloud IT, with access to networking features, data storage space and computers. There is a high level of flexibility and control over your IT resources.

  • With platforms as a service (PaaS), your organization does not need to manage the underlying infrastructure (such as the hardware and operating systems) so your team can focus on deploying and managing your applications. Resource procurement, capacity planning, software maintenance, patching, or other needs associated with running your applications are alleviated.
  • Software as a service (SaaS) provides end-user applications that are run and managed by the service provider. There is nothing for your organization to manage except the software itself.

Some questions to ask when considering a Cloud solution include: do we have the staff and skills to make these decisions and deployments? How much do we want to control in terms of functions and features? Are there specific issues of data security that must be addressed? How is the Cloud solution being backed up, what is the retention and archiving policy?

Again, talk to your IT service partner about analyzing your organization’s current operation, future goals, and how to determine whether a Cloud or on-premise solution makes the most sense for your New Jersey company.

You can also give IND Corporation a call at (973) 400-4227 for a consultation about the financial pros or cons of the Cloud for your NJ business. Our IT professionals will review your business technology needs, your short-term and long-term business goals, and go over your current computing infrastructure to help you determine how to proceed.