Contents

Executive Summary
Introduction
Ensuring ROI from the Cloud

Proactive Utilization Elastic Provisioning and Service

Management
Fast Provisioning
Grow Profits

Shifting from CAPEX to OPEX and Pay-as-you-go

Change in Cash Flow

Changes in Cost of Capital
OPEX Model
Pay-as-you-go Business Model

Cloud Computing

Key Performance Indicators

Key Performance Metrics

Importance of Business Perspective of the Cloud

Conclusion

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Executive Summary
This whitepaper sets out details about various key performance indicators (KPI) and
metrics alongside the Return on Investment (ROI) of cloud computing. Cloud
computing is an emerging model and has brought about a paradigm shift within IT
service delivery. It offers an on-demand access to computing resources, which
includes servers, network, storage, applications etc.
Two major factors which have led to a wider adoption rate of the cloud are low IT costs
and efficient resource utilization. Adopting cloud based IT solutions impacts revenue
and budget lines. It offers a high degree of availability, accessibility and security, while
allowing enterprises to:
Increase ROI and productivity
Extend business opportunities
It further defines certain ways to evaluate and build ROI with respect to business
through cloud computing. Also include are several advantages of improving and
transforming business processes, which have been outlined below:

ROI barriers
Comparison of Cloud ROI with existing technology
Improvising ROI with Cloud Computing
Different parameters to measure ROI

Introduction
Cloud Computing has been able to bring about a technological transformation through
the convergence of a number of new and existing technologies.
Here are some of the key technical attributes of cloud computing:
High-performance and scalability that enables multiple users to scale up or down
their resources as and when required
Seamless abstraction of infrastructure ascertaining critical applications are not
locked into devices or locations

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 Pay-as-you-go pricing model of the IT service enabling users to only pay for what
they use, with no or minimal up-front costs
Critical applications and confidential data retrieved from any access point.
The above technical attributes can also be found in non-disruptive technology
solutions. The rate of transformation, magnitude of overall cost diminution and
technical performance of cloud computing are not only incremental, but can also
improve an organizations business processes approximately five to ten times.
The acceptance of cloud computing as the latest technological breakthrough is mainly
attributed to its low entry cost and fast return on investment (ROI). In this view,
enterprises are evaluating immediate costs of cloud migration, which includes long
term operating costs, hidden costs and expected returns on investment. This can be
estimated by weighing the overall capital expenditures by investing in the cloud
technology against its potential returns.
A careful appraisal of this model needs to encompass short, medium, and long run
benefits of adopting this technology along with the associated termination costs.
Moreover, the evaluation also needs to quantify tangible & intangible benefits in the
equation.
Cloud computing, just like any significant investment, needs a comprehensive ROI
analysis, including up-front or variable outlays and continuous or fixed expenditures
that are required to be incurred throughout its life span. In this concern, it is
imperative for enterprises to identify all potential costs while making a decision to
proceed to the cloud.
Quantifying cloud ROI considerably varies from one company to another, depending
upon different business functions of an organization. Most of the companies that are
engaged in the financial business follow well-defined guidelines for calculating return on
investments and other financial value metrics. Even though, the calculation can be
highly complicated owing to its abstract nature, it is vital for businesses to focus on
identifying the meaningful information in order to make accurate estimates.

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This whitepaper outlines a framework to enable enterprises in making appropriate

decisions by reasonably analyzing components while calculating ROI.
This includes:
Defining cloud computing model and ROI estimation
Describing common challenges, costs, and benefits associated with cloud
computing
Evaluating return on investment for cloud projects, in terms of
- Project funding approaches
- Total cost of ownership and Key Performance Indicators
- Risk Management
The above structure will help companies to clearly define their business objectives
supported by various financial metrics while making a move to the cloud.

Ensuring ROI from the Cloud

The finest way to estimate ROI is to evaluate the initial project cost, upfront capital
used to deploy infrastructure and the new investment savings. However, cloud migration requires no initial investment eliminating a need for upfront capital. It offers users
to pay only for the services they have used. This is called as Pay-As-You-Go model.
In cloud, the initial project cost indicates the total cost of ownership (TCO) of maintaining ones own datacenter. This is because it eliminates the need for datacenter
maintenance ensuring companies to benefit from scalability, flexibility and elasticity of
resources. Apart from gaining improvement in ROI, companies migrating to cloud also
benefit from faster provisioning of resources allowing them market their products and
services at the least possible time.

1. Proactive Utilization
For efficient utilization of resources and capabilities, cloud seems to be an adept platform. It facilitates users with quick provisioning of compute resources to handle peak
demands while optimizing resources to achieve business objectives.

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The challenges faced by traditional computing model including support barrier, hefty
maintenance expenditure and manpower crunch are being addressed by this latest
technology. It further helps deploying requisite software applications and custom-built
tools without incurring licensing fees.
With either static utilization volume or variable functional utilization, new pioneering
consumption models empowered by cloud computing allow businesses to cogitate
using IT in an elastic and responsive way.
This technology can transform the proprietorship procedure from consumer to vendor
in the sense that IT becomes commodity procurement, and consumers emphasis on
result-oriented performance and selections.

2. Fast Provisioning
Rapid provisioning helps to scale up and down resources as per instant demands. This
creates a novel way to scale IT and enables business expansion. Time compression
from weeks to hours is demonstrated by cloud computing providers. This rapid provisioning saves time and defines new business operating models. Organizations come up
with new develop business plans and deploy infrastructure in a proactive manner.
Sometimes customization, design, development, testing and support get boosted
with the provision of IT services.
Providers and clients view rapid provisioning as an exposition of services. Rapid provisioning services are provided to sustain certain buyer needs from existing IT services.
They further deliver choices to ensure innovation and also boost introduction of new
technology.
Influence of rapid provisioning on ROI business is intense. They have led to the emergence of online Cloud-based marketplaces as criterions for current and future trade
between providers and clientele.

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Time Compression to increase

& Decrease Deployment

Value Bring Delivered

Deploy

Test

Congure

Install
Deploy

Test

Procure
Congure

Install

Design
Design

Deployment

---------------------------------------------

---------------------------------------------

---------------------------------------------

---------------------------------------------

---------------------------------------------

---------------------------------------------

Deployment

Months

3. Profit Maximization
Evading over-provisioning and under-provisioning is a core aspect of cloud computing.
It is tagged up alongside cost, revenue and margin advantages of certain business
service enabled by rapid deployment of cloud services.
Cloud computing lets businesses increment change improvement and disrupt transformational effects resulting into innovative business operating models. Further it
offers them to pursue fresh markets through rapid entry and exit routes. Hence the
requirement of additional infrastructure to test and enter new markets gets eliminated.
As a result, Cloud computing has a deep impact on the profit margin. It deploys cost
reduction and economies of scale to utilize existing resources in an optimized way.
Thus ROI business case in an enterprise makes more money through Cloud computing
by utilizing resources better.

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Prot Margin

Reducing Cost per

Function Point

Move from Non-Linear to Linear Scaling

Price/Cost

Ability to Sell Annuity

Services

Revenue Line

Efciencies

Prot Margin

Increasing
Margin
Value Services

Sourcing
Lobg tail
Time

Shifting from CAPEX to OPEX and Pay-as-you-go

In this section we will discuss how the adoption of cloud computing model can facilitate
service providers as well as individuals and service-oriented businesses in achieving
greater Return on Investment (ROI) over the traditional IT models.

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Software-as-a-Service (SaaS) and utility-based cloud computing models are the

recent themes in the field of information technology. They are changing the provisioning
and utilization of new technological innovations. An important aspect of this includes
making a shift from the CapEx (Capital Expenditure) to Pay-as-you-go and OPEX
models, which commands change in the cost of capital investment and cash flows.
Lets discuss these concepts in detail:

Cloud Computing ROI Models

Cost Indicator Ratios

Indicator of cost
effective cloud workload
Utilization

Indicator of availability
performance compared
to current service levels

Workload versus
Utilization %

WorkloadPredicable Cost

Indicator of Capex
costs on-premise
ownership versus cloud

Workload type
allocations

Workload size versus

Memory/Processor distribution.
Indicator of % IT asset workloads
using cloud

WorkloadVariable Costs

Indicator of Opex cost

for on-premise
ownership versus cloud

Instance to
Asset ratio

Indicator of % and cost of

rationalization/ consolidation of IT
assets, Degree of complexity
reduction (%)

Capex versus
Opex Costs

Indicator of on-premise
physical asset TCO
versus Cloud TCO

Availabilty
versusr recovery
SLA

Ecosystem
Optionality

Indicator of number of
commodity assets, APIs &
catalog items

Change in Cash Flow:

The implementation of pay-as-you-go utility billing method sets-off changes in the cash
flow of a business. This implies that the primary source of cash outflow and revenue
streams are calculated on per unit usage basis, including the volume/component used
at a given point of time. Cash Flow after Taxes (CFAT) indicates the ability of a business
to generate cash from its operations. Making a shift from the CapEx to OpEX model
underscores the application of operational expenditure compared to the capital assets
in the treatment of operating statements as opposed to the balance sheet
management.
Changes in cash flow divulge adjustments in the working capital, revenue, and cash,
which further connote the availability and use of funds vis-a-vis liquidity after incurring
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operational expenditures. By embracing the Cloud technology, companies can realize

more revenues as the model drives down expenditures by achieving greater efficiencies
in the working capital. Furthermore, cloud computing leads to zero or minimum upfront
costs and improves asset turnover ratio, average revenue on per unit basis, average
asset recover ycost, and average margin per user.

Changes in Cost of Capital:

As an enterprise makes a move to the cloud computing model, it observes changes in
its ongoing and upfront costs. The operating expenditure mainly focuses on maximizing
the capital for acquiring IT and other assets while mitigating the risks associated with
funds used for the initial business investment along with ongoing maintenance costs.
The cloud model evidently implies a move to OpEX service model, wherein Quality of
service (QoS) and costs are considered as relevant factor in line with the business
performance and service providers SLA requirements.

Leveraging speed & Cost

TCO
Total Cost of Ownership

Adoption of OPEX
based services
Time to market
Time to value
Time to protection

Traditional
Adoption of rapid
Dev/Test/Deploy
Lifecycle

Faster rate of
cost reduction

Cloud
Faster time to
cost reduction

Time

An enterprise with a high weighted average cost of capital (WACC) primarily shifts
from CAPEX to OPEX. In such a situation, a company strives to consider and evaluate
outsourcing solutions, such as cloud hosting solutions, private cloud, and hybrid cloud
hosting solutions.

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OPEX Model
By leveraging the OPEX financial model, a company can release capital from the
resources that require initial investment and acquisition of IT assets. Conversely,
investment in the computing platform requires capital outlays as well as changes in
the funding and payment of service that is amortized over a broader shared service
model to achieve economies of scale.
The cost of capital from debt and equity sources may vary from public to private sector
enterprises, which have share holders and government sources to fund their
investment. If an organizations overall objective to maximize its capital usage by
capitalizing on the available equity and debt funds, cloud business model using OPEX is
the best way for optimizing the capital investments of such enterprises.

100%

OpEx

Sweetspot

90%

80%

x
70%

Agility

60%

Reducing cost while

Increasing business
agility

50%
0%

---------------------------------

-----------------------------------------------------------

x
inflection point

Enterprise commonality

-------------------------------------------------

IT Spend

Business
Agility
Maximum

Minimum

100%

The above graph indicates that OpEx reduces as an organizations business agility
improves. This point is depicted as Sweet Zone in the graph.

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Pay-as-you-go Business Model:

Leasing and financing are the two ways of implementing pay-as-you-go model, wherein
a company shifts its payments or billings to future. Such type of utility financing is
construed to facilitate subscribers to budget their capital expenditures or cash
outflows effectively. This further enables them to pay a premium amount in case they
exceed their capacity limits.

Monthly
Rental
Plan
However, if the billing cycle is not associated with the business outcome metrics,
most of the utility buyers select annual or monthly fixed rates. This means, if a
companys billing is tied to application metrics or IT infrastructure that is not
correlated to its business activity, then it opts for fixed rate billing. Alternatively, if its
billing is predictable and controllable, then it prefers usage-based billing model.

Cloud Computing:
1. Key Performance Indicators
At this stage, we are clear about the financial value of the shift from CAPEX to OPEX
and pay-on-the-go cloud model. This section outlines ways to build return on
investment from cloud computing.

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For the records, service-oriented

business and IT wings experience
extensive frameworks on cloud. Hence
developed ROI models depicting how
cloud computing benefits businesses, IT
consumers and providers, are required.
Cloud computing ROI models & KPIs
involve
various
indicators.
These
assessments oriented ROI models are
as follows:

Performance Indicators compare traditional IT metrics with Cloud Computing

solutions. These are categorized as quality, cost, time and profitability meters
which gauge Cloud Computing characteristics.
Return on Investment saving models determine quality, cost, time and margin
improvements by comparing traditional IT with Cloud Computing solutions.
Indicators of cloud computing are as follows:
I. Cloud ROI model and the outline of its cost indicator ratios:
a) Availability versus Recovery SLA indicates performance availability against a
service level agreement.
b) Workload is compared with predictable costs to indicate CAPEX cost on-premise
ownership against cloud costs
c) On comparing workload with variable cost, one can gauge OPEX cost for
on-premise ownership versus Cloud. This also indicates burst cost.
d) CAPEX versus OPEX cost outlines the difference between on-premise physical
assets such as TCO and Cloud TCO
e) The indicator of cost-effective Cloud workload consumption is depicted by
workload versus utilization percentage
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f) To determine workload type allocation, size and memory/processor distribution

indicates IT asset workloads on Cloud
g) Instance to asset ratio indicates the percentage and cost of rationalization
alongside consolidation of all IT assets
h) Ecosystem optionality specifies the quantity of commodity asset, APIs and
catalog

Cloud Computing ROI Models

Speed of
reduction

Speed of
reduction

Optimizing time to
deliver/execution

Optimizing cost
of capacity

Optimizing
ownership use

Optimizing cost to
deliver/execution

Green costs of
cloud
Optimizing
Margin

Cloud Computing KPIs

Availabilty
versus
recovery SLA

Woekload
predicable cost

Workload
variable cost

Capex versus
opex cost

Workload
versus
Utilization %

Workload type
allocations

Instance to
Asset ratio

Ecosystem
Optionally

Quality

Experiential

SLA Response
error rate

Intelligent
automation

Margin

Revenue
Efficiencies

Market
disruption rate

Time
Cost

II. Cloud ROI time indicator ratios are:

Timeliness

Throughput

Periodicity

Temporal

The degree of service responsiveness an

indicator of the type of service choice
determination
The latency of transaction the
volume per unit of time throughput
an indicator of workload efficiency

The frequency of demand and supply activity

the amplitude of the demand and supply activity

The event frequency to real-time action and

outcome result

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III. Cloud ROI quality indicator ratios are as follows:

a) Experiential: It is the quality of perceived user experience, User Interface (UI)
design and interaction
b) SLA response error rate determines the rate of faulty responses
c) Intelligent automation measures the level of automation response
IV. Cloud ROI Profitability Indicator Ratios are as follows:

Revenue
Efficiencies
Market
Disruption
Rate

Ability to generate margin increase per

revenue
Rate of annuity improvement
Rate of revenue growth
Rate of new product market acquisition

2. Key Performance Metrics:

Cloud computing providers aim on key performance indicators (KPIs) over cloud benefit
metrics. Cloud computing providers are mainly concerned with two different
measurements; IT Capacity and IT Utilization.

Cost

Time
Speed of
reduction

Optimizing time
to deliver/
execution

Rate of change of
TCO reduction by
cloud adoption

Increase in
provisioning speed
speed of
multi-sourcing

Speed of
reduction

Rate of change
of TCO
reduction by
cloud
adoption
Aligning cost with

Optimizing cost usage. Capex to

of capacity
Opex

utilization pay-asyou-go savings

from cloud
adoption

Optimizing
ownership use

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Profitability

Quality
Green costs of
cloud

Green
Sustainability

Optimizing
Margin

Increase in
Revenue/Profit
marfit margin from
cloud
adoption

Reduced
Optimizing time to supply
deliver/execution chain cost
flexibility/
choice

Portfolio TCO License

cost reduction from cloud adoption
open source adoption
SOA resue Adoption

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Run through the following key performance metrics that help to translate the
indicators from IT capacity-utilization curve to direct and indirect business benefits:
1. Reduce TCO: Cloud adoption compresses time and reduces TCO (Total Cost of
Ownership). For an example, several cloud users across the globe think that they do
not need to spend time on thinking about online threats. Cloud protects servers from
malicious viruses automatically.
2. Optimize Delivery Time: Cloud computing increases in provisioning time and also
enhance the speed of multi-sourcing. It reduces supply chain cost. Cloud is one
technology with complete elasticity that improves delivery time.
3. Quick Cost Reduction: Cloud technology reduces the cost of IT infrastructure.
SMBs have decreased almost 6x of the total amount spend on IT infrastructure and
security than the small scale businesses which are still using traditional hosting
technology.
4. Augment Cost of IT Capacity: Cloud balances symmetry of the cost of IT usage and
CAPEX to OPEX IT utilization. Users can avail pay-as-you-go option. Users also
experience cost flexibility on IT infrastructure setup.
5. Reduce License Cost : Cloud helps in reducing license cost from cloud adoption,
open source adoption and SOA Resue Adoption. Users can save money on portfolio
TCO and on other IT related expenditure.
6. Achieve Optimal Cost: Cloud technology is affordable for all scale businesses. It is
costefficient over a dedicated server and is easily maintainable. Users can seek help
from the cloud administrators to avail support.
7. Increase Revenue With Cloud: Cloud users can easily elevate their profit slab by
capital preservation, reducing cost of occupancy, reducing resources cost and more.

Importance of Business Perspective of the Cloud

Nowadays, enterprises undertake different ways to differentiate their business
processes and service quality to achieve operational success.

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They can achieve cost rationalization and service quality through cloud by first
understanding their business processes and service operations.
Cost rationalization is directly proportional to infrastructure enhancements. Service
quality is an indispensable ingredient in gauging the business efficiency. Key
components of service quality include infrastructure, resources, and services
spanning complete business lifecycle.

1. Achieving Economies of Scale

In cloud computing, shared platform helps in resolving operational challenges
encountered by multiple users. Elimination of problems is just one instance of how
a cloud solution can help businesses in achieving more favorable service quality
levels. Business value can be achieved through the unifiedand transparent
congregation of service environment created by the cloud.

Economies of scale achieved through cloud computing

Technology used by organizations to capture data

Operating
Expense

Utilize
Tablet

Smartphone

Desktop

Laptop

Deliver
Operating
Expense
Rented Services

Capture/
Transform

Classification

Bar Code Recognition

OMR

Image Enhancement

Translation

OCR

Multifunction
Scanner

Image
Import

Acquire
Capital
Expense
(Purchase)

Mobile
Tablet

Industry
Hospitality

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Manufacturing

Banking

Transportation

Legal

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2. Focus on Business Portfolio

From a technical infrastructure perspective, cloud computing is hypothetically
missing the bigger picture in relation to real impact of ever-evolving technology on
the business. However, what matters the most is clear outlining of the value to
business. Business value can be defined in different ways.
It not only encompasses the financial values of Total Cost of Ownership (TCO) and
Return on Investment (ROI), but also customer value, vendor/supplier value, broker
value, brand value, trade value and technical value of the investment.
Any venture undertaken by any organization is actually the portfolio of business
processes. Through implementation of effective portfolio management techniques,
an organization can classify business processes into three spheres. The
processes in each domain have shared IT enablement solution selection
benchmarks (for instance, segregation based on IT, segregation not based on IT,
and no segregation), and apply the solution selection norms.
The business perspective also involves consideration of whether adoption of Cloud
services can help simplify interactions with business partners, associates or
partner organizations-for instance, by using Service Oriented Architecture or EDI
via the Cloud.

Conclusion
The evolution of cloud computing over the past few years is undeniably one of the key
advances in the history of computing. To realize the benefits of cloud one must have a
strong understanding about diverse issues involved, right from the suppliers
perspective to technology users.
Key performance indicators and metrics of cloud computing assesses current and
future operational profits of businesses and numerous IT service requirements related
to the potential of this emerging technology. Companies are examining their
performance metrics by shifting from the CAPEX to OPEX model. From a financial
perspective, this means that enterprises consider cash flows as a significant
indicator to drive their business performance.

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In such a scenario, they implement different computing models in line with their
business requirements. For instance, fixed rate billing is employed by companies with
unpredictable business activities, while pay-as-you-go business model is preferred by
the organizations with controllable usage-based billing.
While a lot of research is presently happening in the sphere of cloud technology, there
is a stark requirement to comprehend the business-related qualms surrounding this
technology such as ROI. Therefore, understanding these complications and
comprehending their impact upon business functions is truly essential.

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