How to figure out the value of cloud computing

What is the true value of cloud computing for your business? We thought it was easy to define, once upon a time, but we were very wrong. In those days we thought cloud computing would lower IT operational costs and spending via operational expenses versus capital expenses. In other words, rather than budget for the usual hardware, software, and data center space, we forecasted lower operational costs and redirected capital savings to more strategic purposes.

These days we know better. Gartner predicts that 60% of cloud leaders will encounter public cloud cost overruns. Moreover, Flexera Software’s 2020 State of the Cloud Report estimates that 30% of enterprise spending on cloud infrastructure is wasted.

The reasons for these overruns and waste are well explained here. These days, cloud cost surprises are of great concern within boardrooms and CIO offices. The worry is substantial enough that it’s generated a new industry around cloud cost monitoring/observability and governance. All of this oversight is rolled up into the concept of finops for cloud computing. 

At its essence, the objective of finops tools is to help you determine the true value of cloud computing. In practice, to calculate the true value of cloud computing for your business, you must consider a complex array of metrics that are customized for your specific industry and specific business. Moreover, the metrics will differ widely from companies’ metrics in other industries or even the same industry. Therefore, I tell my clients to focus on what works for their situation rather than adopt OPIs (other people’s ideas) without question.

Although the path to understanding the value of cloud computing continues to get more complex, we know much more about the process now than when we started this cloud journey about 15 years ago. First and foremost, we know there is more value in the less concrete value-drivers of a business, namely soft values such as the ability to increase agility, speed the time to market, and weaponize innovation. Unfortunately, these are the hardest (and often impossible) data points to determine by just looking at the cloud bill. 

Fact: A business that successfully leverages cloud computing can better keep up with disruptors by becoming a disruptor itself. This is a bigger issue in the major industries as smaller, faster, and more agile competition threatens long-established powerhouse companies, very much like ride-sharing and vacation rental apps have disrupted the taxi and hospitality industries, or how online shopping threatens big-box retailers that focus more on physical locations than internet presence. 

The significance of soft values really depends on your industry, your business model, and the value multiplier for your specific situation. The investment in cloud could be returned to the business as much as 500 times (a clear win) or as little as 5 to 10 times (borderline “why bother” territory).

The key is to identify the specific reasons the enterprise needs to move or is moving to cloud computing. You can’t rely solely on cloud cost observability, cost governance, and suggestions about every finops business process and best practice out there. Instead, look at the long view and then work backward.

The true goal of cloud investment is in how much value it will bring to the shareholders. How can the enterprise meet cloud revenue goals in both hard and soft cost gains? It takes time to connect the lines from the end goal to the correct game plan, but this process will improve visibility into the profitable path forward. According to my finance course in college, profitability is why businesses exist in the first place.