The commoditization of technology has reached its pinnacle with the advent of the recent paradigm of Cloud Computing. Infosys Cloud Computing blog is a platform to exchange thoughts, ideas and opinions with Infosys experts on Cloud Computing

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June 27, 2009

The Cloud ROI Framework

Last week, I had an opportunity to discuss the cloud computing ROI model with a large banking major.  We did some illustration using the simplistic ROI framework and figured-out the savings to the scale of 90% on CAPEX and 50% OPEX cost Y-o-Y.

The numbers were attractive enough to get attention of “C” profiles, he was bit positively surprised. The first question he asked was: what’s the trap here? He understands the concerns of security and outsourcing in banking business better than me, so I need not attempt raising technical obstacles. I simplified the answer: It is paradigm-shift; IT needs to manage this change! To my surprise, the wave-length matched just here, and we had constructive meeting.

We discussed the future of IT is in cloud, it is a big wave like moving from DOS to Windows; Desktops to Internet and On-premise IT to Cloud; through iterative lean IT transformation. We were on the same-page throughout, we concluded meeting with a note saying that – enterprises will adopt cloud tomorrow if not today; but if they fail to do it, they will be forced to adopt.

The Cloud ROI Framework

I will present an illustration of cloud based ROI model, I am not MBA, I used a very simple framework, maybe it is over simplistic, please bare-with my expertise on this. You can help me with the flaws in the model including depreciation, tax benefits, Y-o-Y savings and NPV – I don’t understand this well enough.

Excluding migration cost, it releases the 90% of the CAPEX investments and reduces OPEX cost by 50% every year. I know, there are multiple assumptions in this model, also not every piece of data might be accurate, however the range of benefit is still attractive, we can make refinement & correction in given customer context.

The Financial Model

I also tried to work-out some sort of financial model for Y-o-Y savings and what-if analysis around cost of migration.

You may want to read my previous blog entry on The Economics of Cloud Computing for some more horizontal business cases. You may also want to know How enterprises have benefited from cloud in my earlier blog entry.