Cloud Computing | Feature
Cost Savings in the Cloud
For any institution looking to shift ERP systems to the cloud, big savings can be achieved--but only if the school has properly prepped before negotiations begin. These 3 steps can help.
- By Dian Schaffhauser
Pamela Hamilton/The Image Bank
Every public college and university in Utah has shifted its learning management system to a cloud-based version of Instructure Canvas. By doing so, the institutions collectively have shaved $300,000-$400,000 off their annual LMS bills.
"Maybe there are other areas that are flush with cash, but we're not," says Ray Timothy, CEO and executive director of the Utah Education Network, the consortium that put the LMS deal together. "In an environment with scarce resources--especially where taxpayer dollars are involved--we owe it to our taxpayers to maximize those dollars and use them as efficiently as possible."
While other schools have discovered similar benefits in moving mission-critical applications to the cloud, it's hardly a stampede to migrate. More than half of community colleges in the United States have moved their LMSs to the cloud, yet fewer than 10 percent have migrated their operations for enterprise resource planning--finance, human resources, student and alumni management, and fundraising. The numbers are even smaller for public universities, where fewer than 30 percent have shifted their LMSs to the cloud and about 5 percent have done the same for their ERP systems.
While the numbers are up from 2011, says Kenneth C. Green, who compiled the statistics as part of his annual Campus Computing Project survey, they point to a lingering challenge: There's still "little movement to the cloud for the really 'big' tasks," he notes, due to the perceived risks, the lack of trust in cloud providers, and the lack of control inherent in the cloud model. And it may just be that schools don't perceive any real cost benefit to making the move.
Yet savings are there to be made. Notwithstanding the collective bargaining that Utah schools enjoyed, individual institutions can significantly cut their costs by following three important steps before they negotiate a contract with a cloud-service vendor.
1) Mop up the Mess First
In moving to the cloud, institutions often make the mistake of simply shoveling their sloppy operations over to a service provider, which promises to handle the work for less than the schools are currently budgeting. IT-analysis firm Gartner describes this approach as "your mess for less." Following this path leaves schools paying more than necessary--whether they're moving to the cloud or simply outsourcing.
Sure, the service provider can often make some quick process improvements that reduce the cost per transaction. But, given that the school probably signed a multiyear agreement, it's still saddled with a fundamentally inefficient system that will cost the institution a premium it could have avoided with even a modicum of process improvement.
Consider instructor evaluations, for example. On one hand, a school could fob off its paper-based faculty-evaluation process to a cloud-based operator that would scan the student responses before compiling them into reports that can be read online. This would essentially duplicate what the institution itself is doing, albeit more efficiently. Or, the school could implement a service that allows students to fill out the survey via their mobile devices in 10 minutes of class time, streamlining the effort and eliminating waste. In the long run, the second solution will cost less in the cloud, since the school is not paying a vendor to clean up its mess first.
"You cannot intelligently look at your sourcing options--whether it's commercial or cloud--unless you really know your own services," says Laurie Antolovic', associate vice president and chief financial officer in the Office of the Vice President for Research and Information Technology at Indiana University. "You've got to get your house in order."
2) Understand Your True Costs for Services
In weighing a decision to shift business services to the cloud, IT leaders often don't know which costs will go away. "You just assume it's 100 percent, but you still own that service," Antolovic' points out. If a school shifts its financials or HR to the cloud, for example, it's still ultimately responsible for user support, security oversight, and management of the vendor relationship. And that costs money. No school should negotiate a deal with a cloud provider until it has a handle on the expenses for which it is still on the hook.
To ensure that IT understands the true cost of any service it delivers, Indiana U utilizes activity-based costing, an accounting approach borrowed from manufacturing. Rather than talking about the cost of blades, software licenses, or technicians, each cloud-delivered service is priced out, encompassing an end-to-end tally of all of the direct and indirect expenses that contribute to the overall cost of that service.
"We start at a very fine level of granularity," explains Antolovic', who cites e-mail to illustrate the process she employs. "For every e-mail using this particular system, for every message that hits me, I know how many cents that is."
The same tally can be done with more complex transactions. For example, FolderWave, a company that provides cloud-based ERP services for higher ed, goes into its sales pitches already armed with an estimate of what an institution spends on a function--be it admissions, financial aid, or whatever--that it might be asked to take over. It uses industry-standard metrics and the volumes reported by the school to make its calculations.
If it's a paper-based admissions process, for example, a unit of work might involve multiple steps, such as "making the folder, printing the labels, and people putting stuff in it," notes Bob Burke, FolderWave's president. Accounting for everything's that involved in delivering the service is key to gauging costs accurately. "That's our first sanity check," says Burke of the estimates that his company develops. "Nine times out of 10, we're pretty darned close."
The lesson? If a vendor can nail down a school's costs, so can the school--and it should. Otherwise, it won't even know whether a vendor quote represents a savings or not.
3) Calculate the Cost of Transition
Any move to the cloud has a learning curve. "Somebody else is now watching [the server], monitoring it, and maintaining it, but there are still costs associated with the transition itself that you have to accommodate," Burke explains. "Who's reporting on this stuff and how frequently? How do we know it's up and running? How do we know we have the right service level agreements being measured?"
Burke says there's a good reason why most schools sign contracts with a three- to five-year term. "If you're jumping in to revamp an entire process, you're often revamping things in the first year," he explains. "It's in the second year when you see your biggest gains in productivity--once the customers are familiar with the process and have their arms around how things have evolved and changed."
It's Not Always About the Money
In some cloud migrations, financial savings need to take a back seat to other considerations. Until a few years ago Hebrew Theological College (IL) used a homegrown, single-user student information system (SIS) to keep track of applications, transcripts, and enrollments at its two Chicago-area campuses. Only a single "master user" could enter data and do updates; everybody else had read-only access. This approach worked when the college was much smaller, says Cheryl Karp, coordinator of institutional research, but it was unable to keep pace with the school's growth--600 students are currently enrolled.
To address the problem, in August 2009 the college adopted Enrollment Rx from a company of the same name. "Jumping straight to a multiuser system in the cloud was like propelling us forward about five centuries," Karp notes.
Now, staff can access the SIS from their mobile devices while on the road recruiting or from their offices while on the phone with students. The cloud-based service "has really enabled us to manage our applications, to understand who's applying, where they are in the process, and do the right amount of follow-up," explains Karp. "That's been very helpful." Plus, communications with students regarding financial aid have been greatly improved. "That probably has helped us to recruit students we really want to be here, because we're able to service them better," she adds.
The newer application has also given the college more flexibility in its reporting. "Our old system had some limitations in what we could report on, how we could track students, and [allowing us to ensure] that everything was going to the system properly," notes Karp. "The [new] reporting features have been very powerful for us, making sure the people who need the information can access it from wherever they are, whenever they need it."
Despite all these improvements, Karp has no way of measuring the cost savings of the move to cloud services. She knows the savings exist, however. "Because of the benefits it brings us, it's certainly not seen as a exorbitant or high cost for what we're getting," she insists. "We intuitively have a feeling that the better we can service our prospective students, the more likely they will consider us and choose us."