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Is there an ROI in Your Cloud Strategy?

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Is a cloud-based collaboration system in your strategy but those pesky accounting people want an ROI study? A content information management (CIM) system may be more difficult to calculate the ROI due to a number of factors:

1. Many CIM systems being purchased are departmental systems that are considered supplemental to an existing system. If the CIM system is used to communicate with people outside of the corporate firewall (a typical example), the CIM may be replacing email or FTP services but those services are typically not discontinued because of the CIM. In this case, the CIM system is an additional cost to the company as an operating expense. There may be actual benefits and efficiencies to bringing in the CIM but it will be hard to quantify an ROI in terms of hard dollars if nothing is replaced.
2. While software and hardware are not being purchased for a CIM system, the company still maintains a computer room that services other on-premise applications. The new cloud system will most likely not affect or reduce the current computer room costs – based on one application. In fact, since the existing equipment is now doing less, the cost per transaction for ongoing business, for each server, will go up since the computer is not being fully utilized. However, there is what is called “cost avoidance,” which is a cost that is avoided by purchasing the new system. For example, if you were planning on a new document management system and were looking at an on-premise system, you may have to purchase new servers and additional storage and other computer room incidentals. By going with a CIM, you avoid those purchases, or costs, and these avoided costs can be used as part of the ROI calculation.
3. A typical CIM system is a fully realized system and there is typically no need for an IT person to customize and configure the product. In addition, the company that is selling the cloud system maintains its own “IT” department and therefore supports the product itself. However, since a typical company is not going to downsize the IT department for one or two cloud-based systems, the cost of the IT department continues and in fact, like server costs, will actually go up since IT is doing less work but still remains as a fixed cost.
4. In some cases, a cloud system will be or is the front-end to an existing legacy system so that none of the existing legacy system costs go away. And, as in the case of hardware utilization, the cost per transaction will increase because the legacy system is being used less but the owner is still paying full costs for licenses, version updates/upgrades, and maintenance. In addition, consider the cost of a primary on-premise document management system upgrade – for a large system, a major upgrade to a new version may cost in the 10s of thousands of dollars including the upgrade itself, the IT time spent performing the upgrade and the potential costs of vendor personal or hired contractors who guide you through the upgrade.
5. If your CIM system is a new addition to your company, i.e., not replacing a legacy system, and it will be used department-wide, for example as a document management system to replace your file share system, then you may be able to calculate an ROI using the traditional methods. First, calculate the current cost of doing business in the manual share-drive environment. Next calculate the cost savings by doing it with a CIM system. For the CIM system, you will need to define the cost of the system for a year (which may be number of users times the cost per user for 12 months).
6. Part of the reason for purchasing a CIM is that they offer a pay-as-you-go model – which means that your number of users may vary during the year as a project ramps up or down. This is unlike a traditional document management system in which you purchase a fixed number of “Seats” or license blocks for 50 or 100 users. It is not likely that the number of users will go down, but it is very likely the number of users will go up over time.

Given the above, the following are typical areas to consider when thinking ROI:

1. Hardware costs – will you save anything? Don’t forget servers and storage devices.
2. Maintenance for the hardware – will there be any savings here?
3. Legacy software licenses – can they be reduced (seats)?
4. Maintenance for the software – include both vendor support and your internal support costs
5. Facilities costs – can you lower the power, HVAC, building costs in any manner?
6. Productivity/efficiencies gained – are people who will use the new system more productive? In what ways?
7. Agile opportunity potential – are you able to respond faster, but cheaper, to opportunities that otherwise would have taken more development time and money?

These are only suggestions and pointers. Be creative and search for everything that will be affected by the new CIM system and if the CIM system will affect existing cost centers and productivity centers. Has anyone out in Bloglandia done an ROI for a CIM that they would want to share?

This post and comment(s) reflect the personal perspectives of community members, and not necessarily those of their employers or of AIIM International