The Challenges of Establishing the Financials for a Cloud Project
All the technical cloud evangelists are going to hate me for dwelling on the practical financial matters of establishing a cloud project but I am afraid these issues cannot be ignored. If organisations cannot break the deadlock on the problem of first man in or last man out with an sensible approach to managing allocation of costs, then the organisation will be in danger of missing out this critical technology revolution.
In case you have not read my earlier posts, or in case it was not clear, then let us take a real worked example of the challenges faced by a typical organisation in transition to the cloud. Smaller, more nimble organisations may not face this issue so starkly, but certainly the medium to larger ones will.
Let us imagine we have a set of systems or services that are used and shared by a number of departments and perhaps entities within a corporation or corporate group. Each department and or entity will pay something towards the system services they consume in their budget whether this figure is based on the number of users, or some more sophisticated measure of usage. Let us assume the organisation now wants to try to move to cloud-based services. No project is free, so there will be investment costs not least in management time and testing effort, probably also in terms of engineering. The first challenge is in who pays the project costs. In many organisations this will typically be the first consumer, as it is rare to find (or persuade) all consumers to be ready for change or to see the advantages. In this scenario, we often find that the investment is too large for one consumer to carry alone. Either way, this is the first hurdle to be overcome in getting the project off the ground.
At least if the smaller user leaves, the remainder can absorb the unchanged remaining running costs without too much pain. But perhaps consider when it is the largest consumer that decides to move and they alone can carry the investment costs to make the move….now that leaves a huge issue for the remaining users on running costs, and time and again we see this as blocking progress and blocking decisions.
It may be stating the obvious therefore but the cloud decision is not a technical decision, it is a financial one. The technology might be great but no commercial organisation will make a decision without the right financial levers in place. Even the financial case will often prove insufficient, as there also needs to be the right political willpower to make change happen. As we see above, if the organisation cannot be persuaded to act as one, even compelling financial arguments can be stymied by political indecision.
As a final thought, it is hardly surprising that Private Cloud project proposals are suffering worse in many cases than a move to the external market, they exacerbate this political cost transfer impact because none of the costs can be shared outside. Overcoming the first man / last man hurdles when the project purely transfers the cost sharing model, albeit with some reduced unit price, will never match the cost case of sharing with the wider community.