Cloud computing has the potential to reduce costs, but you need to crunch the numbers to ensure it represents value for money for your organisation.
Divest IT, a cloud computing provider, compares costs of the cloud against traditional IT infrastructure costs. Its calculations show the total cost of ownership (TCO) of cloud computing is 15 per cent lower than the traditional onsite server environment over a five-year life cycle. TCO includes all direct and indirect costs of owning a particular asset.
But do Divest IT's claims stack up?
"Their modelling is faulty," says Milton Baar, a Macquarie University IT lecturer and founder of IT consultants The Swoose Partnership.
"They don't show the cost of downtime due to cloud failure. They don't show the cost of services that may need to be supplied as 'extras'; they don't show the cost of having ISO, SOX [or] COBIT certification; they don't show the cost of the loss of confidentiality, integrity [and] availability due to cloud hosting.
"No cloud provider will provide a guarantee in that area, so it is up to the user and vendor to agree on extra costs to facilitate the protection, and even then it is at no accountability to the cloud provider if something does fail.
"And remember, confidentiality is like virginity, nothing you can do will bring it back once it is lost."
Calculating internal costs is complex, says Arun Chandrasekaran, Gartner's research director. (See Gartner chart.)
"The most difficult cost to calculate is personnel costs. How do you attribute costs to an internal IT team, as some may have multifunctional roles?
"Bandwidth cost is always challenging to calculate. For example, over a five-year period there is no clear idea of what the costs will be, as there is no clear idea of data [needs] over five years."
Most cloud providers will charge you more because they provide a higher level of service backed with guarantees, says Rhys Evans from Thomas Duryea Consulting.
"The focus [for cloud] should be those applications that get rid of the burden from your IT team."
Government warnings and advisories
The Department of Finance and Deregulation has a paper, Financial Considerations for Government Use of Cloud Computing. It advises government agencies to ensure they are not "locked" into a relationship with a cloud vendor beyond the duration of the contract, and to look at any exit costs.
If cloud vendors offer multi-tenanted infrastructure services, where clients co-locate their computing cloud with others, then there may be hidden costs, if arrangements change.
The department also warns against costs associated with increases in service level usage. Monitor usage, for example, by requesting daily reports.
It recently released a policy on data centres-as-a-service, including 35 suppliers selected to provide cloud services to the federal government.
Contracts should be capped at $80,000 and 12 months to reduce the risk of exposure and remove the need for complex contracting and legal arrangements.
Pay as you go
With more and more cloud providers following the lead of Amazon Web Services and charging only for what is consumed, companies are increasingly tempted to consider the model for some or all of their computing needs.
But the decision whether to buy services on a pay-as-you-go basis is still a capital expenditure (CAPEX) versus operational expenditure (OPEX) decision, says Evans.
"We are seeing more customers moving towards a more OPEX-based internal model with leasing agreements allowing them to not wear the cost of the equipment on their balance sheet."