Doing the Maths: Financial Considerations of Cloud Computing

Positive and Negative Implications

In order to gain a rounded view of the financial implications of cloud computing, it’s important to understand both the positive and negative aspects of moving your infrastructure to the cloud. As far as positive aspects, here are the headlines:

• Cloud computing delivers greater cost agility, enabling you to reduce expenses as you reduce demand for services.
• Since you don’t need to invest upfront in hardware, or refresh that hardware as part of a refresh cycle, cloud computing enables you to increase your retained cash.
• For public sector organisations dealing with budget constraints, cloud computing is a great way to reduce opportunity costs and free up cash that can be reinvested into frontline services.

There are, however, some potentially negative implications of cloud computing:

• Software as a service (SaaS) models can result in organisations paying more for additional licences, but not less for fewer.
• Although money is saved in upfront costs subscription fees for cloud computing are typically higher than for on-premises deployments.
• If you transition your data from SaaS back to an on-premises deployment, costs can be surprisingly high.

Weighing up the positive and negative financial considerations of cloud computing is important, but once you decide to proceed you will need to evolve your financial operating model in tandem. In the following section we’ll explain how.

Evolving Your Financial Operating Model

Cloud transformation will fundamentally change your organisation’s IT operating model. Here’s how it will benefit your core financial statements:

• Balance sheet. Cloud computing makes your balance sheet more agile, shifting fixed assets to cash. Many organisations are locked into long-term legacy data centre contracts. These contracts can limit the cash and capital required to evolve citizen services in-line with their developing needs. Cloud computing enables you to shift legacy investments to developing cloud applications and other projects that drive improvements in citizen services.
• Cash flow statement. Organisations that transition to cloud computing save cash by moving away from cyclical and sporadic IT asset purchases. By paying for what you need, when you need it, you can increase visibility and predictability, and delay cash spend.
• Income statement (profit and loss). Over time, you can improve profitability by reducing the cost to deliver equal or larger IT value by taking advantage of cloud computing’s inherent flexibility, low management costs, broad portfolio of services and flexible pricing models.

Financial Considerations of Cloud Computing

Public sector organisations are under increasingly scrutiny to derive the maximum value from the public purse. In this blog, we’ve taken a look at some of the financial considerations of cloud computing. At Six Degrees, we believe cloud computing makes it easier to manage budget constraints, achieve flexibility when compared to long-term legacy contracts, and make cost savings that can be reinvested into frontline services.

Is your organisation seeking to move away from a large outsourced infrastructure programme? Our new Springboard to the Cloud eBook examines the issues, processes, and technologies that can be adopted to provide public sector organisations with a journey to the cloud – a two-hop approach to transition, then transform to true public cloud delivery from legacy on-premises servers.