Making the Business Case for the Cloud

• By David Raths, Rama Ramaswami, Dian Schaffhauser
• 11/30/11

"Positive, but not utopian." That's how Reed Sheard, vice president for college advancement and chief information officer of Westmont College in Santa Barbara, CA, sums up his two-year experience with six different cloud initiatives, including Google Apps for Education, Meraki's cloud-managed 802.11n wireless network, and Salesforce.com.

Still, it has been a vast improvement from the pre-cloud days, when Sheard's small, overstretched IT team struggled to maintain basic services such as e-mail. "It has definitely improved the user experience for the 1,200 students here, as well as for the faculty and staff," he says, adding he will strongly consider cloud-based solutions whenever system changes are required in the future.

Cloud initiatives appeal to many campus technology leaders because they off-load services that are seen as commodities and free IT staff to work on higher-priority projects. As with any other application or infrastructure outsourcing, though, CIOs have to weigh potential risks and trade-offs, and make strong business cases to their chief financial officers, university presidents, and boards of directors.

Source: CDW-G 2011 Cloud Computing Tracking Poll (based on responses from 150 IT professionals

The business case will differ depending on whether you are moving infrastructure or just applications to the cloud. Sometimes it involves difficult apples-to-oranges comparisons, as in replacing the Microsoft Office suite with free Google Apps. "The free e-mail services are attractive options, but as the cloud matures you will have to keep reviewing the business decision and the types of control you are giving up," says Ben Marglin, a principal with the consulting firm Booz Allen Hamilton who specializes in IT strategy for the public sector.

Universities are smart to start small with pilot projects that don't involve mission-critical data. Even so, it helps to have a clearly delineated cloud computing strategy. Twenty-nine percent of higher education institutions have already developed written strategic plans for the adoption of cloud computing, according to a 2011 tracking poll of 150 schools conducted by CDW-G. In fact, survey respondents expect to spend 15 percent of their IT budgets on cloud computing within two years.

Sheard has been able to show his Westmont administrators cost reductions of 55 percent over the lifetimes of the solutions he has moved to the cloud. For instance, the college had a storage-area network (SAN) that was nearly full. "We moved a terabyte and a half of archived e-mail into Google's cloud and freed up space on the SAN," he says. "That saved $125,000. We spend only $8,100 a year for all the cloud services combined. We also have freed up two FTEs to work on projects that matter much more to the college."

What CFOs Like to Hear
"When you say cloud, CFOs hear flexibility," says Scott Bils, a partner with the Everest Group consulting firm. "They like paying only for what you use rather than building capacity that sits unused 80 percent of the time."

CIOs can make the case for eliminating excess capacity in their data centers. "Own the base, rent the peak" is becoming a common saying. In other words, with an application that has spiky demand, such as class registration, you cover the low point in-house and put the rest in a cloud. "The applications must be designed for that," Bils says, "but we have seen enterprises cut 30 percent to 40 percent off their infrastructure costs using this approach."

In 2008, Hofstra University (NY) hosted a presidential debate and, for that short period, the university's website ranked No. 8 on Google's global list of sites by number of hits. "We did all kinds of internal gyrations to handle that," notes Robert Juckiewicz, the university's vice president for IT. Now Hofstra is working with Amazon on website disaster recovery and traffic spikes. "By going to the cloud, we can be more elastic," explains Juckiewicz.

Another case to make to your CFO: Moving to the cloud means you can shift some costs from the capital expense column to the operating expense column. CFOs prefer operating expenses because they are typically paid for monthly and can be adjusted more easily in a volatile budget environment. This approach also saves CFOs from having to seek financing for capital projects, and may keep the school from investing in technology that becomes outdated in a few years. Analysts tend to agree that the smaller the college or university, the more appealing cloud offerings will be compared with long-term IT infrastructure and staff investments.

When Hofstra moved student e-mail to the free Gmail service and faculty and staff e-mail to a paid hosted Microsoft Exchange Online service, Juckiewicz had to build a business case for the president and provost.

"Our philosophy is to work on items where we can add value in-house and move it out of house if we can't," he explains. "With e-mail, we were struggling and not adding value."

An aging GroupWise e-mail system was going to cost $250,000 to upgrade. "The Microsoft arrangement includes an archiving capability, so it improved the service and put us in a much better position for disaster recovery at a significant savings," Juckiewicz adds. "And we could eliminate all our spam filtering. That alone is just shy of the total cost of the whole Microsoft deal."

Other potential savings to highlight in any analysis of the total cost of ownership:

• Lower software-licensing fees
• IT staffing reductions or redeployments
• Reduced maintenance costs
• Fewer purchases of application servers and storage hardware
• Reduced burden on facilities, including buildings, HVAC, and utilities

Of course, the priorities behind cloud-sourcing decisions shift from time to time. In a 2010 Yankee Group survey of IT decision-makers across all industries, the top reason respondents chose software as a service (SaaS) was because it was cheaper and made software licensing easier. In the same survey a year later, the No. 1 reason cited was that it allows mobile users to stay connected.

George Baroudi, CIO at Long Island University (NY), uses Google for student e-mail, apps, and video, but he doesn't cite cost savings as the key reason to consider the cloud. "I want to dispel the myth that there are any savings from personnel in cloud computing," Baroudi says. "There may be some savings in servers or electrical costs, but, in terms of personnel, it costs us the same amount."

LIU maintains control of creating and eliminating accounts and passwords, and uses the same staff members to handle this task as it did before the move to the cloud. "We can't make a business case for it on strictly financial terms," adds Baroudi. "It's more because you see this as the evolving realm of computing. It makes us more resilient and flexible. The students are connected all the time."