Cloud ROI is not found in saving costs, but achieving goals

I’m stuck in Groundhog Day. But instead of waking up to Sonny and Cher’s “I Got You Babe” over and over again, and then stepping in the same puddle, I’m caught in a recurring conversation about the value of cloud investments. Namely, the belief that it’s found in saving the organization money, which is incorrect.

In this article, I’ll explain why this shouldn’t be your primary measurement when you’re thinking about the return on your cloud investments, and where it actually drives business value. 

Most organizations think cloud ROI is found in saving money, then wind up spending more

If you believe cloud investments should be saving you money, you’re certainly not alone. Cost efficiency and savings is the #1 metric for assessing progress against cloud goals, and is used by 87% of organizations. Certainly, if you ask the big three—AWS, Azure, and GCP—what the benefits of cloud computing are, “cost savings” makes all three lists. 

And in a sense, you do save money. Certainly, running and staffing your own data center is not cheap. Compared to only having to pay for the computing power you’re actually using in the cloud, you’re trading a fixed expense for a variable expense, which is a big bonus.

And yet, cloud costs are notorious for being larger than expected. Nearly three in four (72%) of IT decision-makers exceed their cloud budget every year. 

Cloud costs tend to stack up due to a combination of factors

If you’re looking for a smoking gun for why cloud costs tend to be higher than most organizations like, there’s not one, but several. Here are the bigger ones.

1. When something is useful, you spend more on it

It’s Jevon’s Paradox 101. When a technological improvement increases the efficiency of a resource, this results in people using it more, not less. When an organization adopts cloud services, staff are empowered with a tool that is cheap and can solve a wide variety of problems. They start using it everywhere, which means they may well spend more money on cloud than they were on-prem.

Two of the biggest areas for exceeding cloud budgets are excessive storage (52%) and overuse of network bandwidth (42%). Both of these point to a strong appetite for using cloud services beyond what the organization has scoped.

2. To deliver on AI projects, businesses are spending more on cloud

75% of cloud leaders are planning significant increases in cloud investment over the next two years, according to NTT Data’s latest research. The main reason? To make sure their AI projects succeed, which depend on the cloud to underpin them.

3. Organizations rarely have the talent and skills to use cloud correctly

Only 8% of organizations have fully captured cloud value. That means using methods that actually get a good ROI at a lower cost, such as:

• Adopting cloud-native architecture

• Automating compliance and cost management

• Having proper cost monitoring in place

• Spinning down or scaling unused and underutilized resources

…And so on. This winds up as wasted spend, because they don’t have the internal talent and cloud maturity to use it in the most efficient way. 

4. A lack of cloud governance, visibility leads to poor ROI and cost control

This also ties back to cloud maturity and skills. 41% of IT decision-makers admit to not having built cost governance into their cloud infrastructure. They typically manage costs only once they’ve blown out of control, often with little granular insight into where the company is actually wasting spend.

The main ROI of cloud computing: Achieving organizational goals

Cloud ROI is found in helping you achieve your objectives in a way that simply isn’t possible by building your own infrastructure. Instead of cost, your value is found in areas like:

• Agility

• Scalability

• Security

• Flexibility

…and this directly translates into achieving business goals, such as…

• Swiftly delivering new products and services

• Increasing the number of customers adopting your services

• Providing increased value to your business units

• Having a competitive advantage

• Increasing your speed of innovation

• Decreasing and eliminating your technical debt getting in the way of success

• Avoiding cybersecurity risks and keeping your organization safe

All of these are what really matter. 

And when it comes to cost, think about how much you would have to spend to replicate things like:

• Having the same level of physical security for your information offered by an AWS data center.

• Replicating Azure’s content delivery network (CDN) to display your internet content to everyone around the world at lightning-fast speeds.

• Having the business continuity to survive a regional earthquake or power outage, such as those offered by GCP’s globally distributed availability zones.

…And so on. You’re paying to solve a problem you didn’t even have the option to solve before. You’re not going to practically have three staffed data centers of your own sitting around to be used just on the off chance that a failure happens.

Another thing to note is that if you’re able to do something that generates ten times as much value with two times the spend, this is still a net benefit for your business.

Conclusion: Learn what cloud can offer your organization at a high level

The root of all ROI disappointment is the gap between expectations and reality. Rather than focus on how investing in cloud should be saving you lots of money, focus instead on how cloud enables you to do the right thing and achieve your objectives, instead of failing to reach them at the same or cheaper cost. 

For leaders, I’d recommend taking the Pluralsight Cloud Transformation path, which is designed to help decision-makers master the strategic, operational, and cultural aspects of cloud adoption and operation. This will empower you with the knowledge of what cloud can actually deliver in terms of ROI for your organization.