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Preparing for the real costs of cloud computing

Bob Violino | Aug. 15, 2011
Plan ahead to avoid the gotchas that can make you blow your budget.

Alboum says he needs to ensure that he has available funds to cover the new monthly costs. "Overall, [the cloud] is very manageable and likely results in overall lower costs for the government," he says. "But it is different than what we've traditionally experienced."

It's not a matter of the cloud service costing more than in-house hosting. "I think of this as a cash-flow issue," Alboum says. "If I'm going to pay monthly costs, I need to have available budget to cover those costs at the time I incur them. In the more traditional model, I would purchase hardware and associated services in a lump sum when I had the budget. The new model is likely less expensive, but requires a change to budgeting practices."

Pilots and setup costs

Be aware that free pilot programs for cloud services can quickly turn into expenses.

"Many providers offer free pilots, with various approaches about when these free pilots turn -- automatically -- into paid services," says Frank Ridder, research vice president at research firm Gartner. "Some pilot schemes are very short."

Before undertaking any pilot program, organizations should negotiate all contract terms and minimum discounts that are due if the pilot is successful, Ridder says.

Cloud's costs

Setup costs are another area to look out for. "Clients often get attracted by cheap ongoing [service] prices, and do not see the sometimes high transition cost, integration cost, etc.," Ridder says. For a service like email, these costs can be easily $10 to $30 per seat, he explains.

Much about the cloud is still relatively new, and experts say organizations evaluating cloud services need to look at both the costs and potential benefits. In a report on cloud services in April 2011, Gartner noted that IT executives "should take steps to manage inherent risks and unexpected costs during the cloud services revolution."

The services and cloud sourcing are "immature and fraught with potential hazards," Ridder notes. "Cloud computing is driving discontinuity that introduces exciting opportunities and costly challenges. Organizations need to understand these changes and develop realistic cloud sourcing strategies and contracts that can reduce risk."

He says the services sourcing life cycle includes four main elements: sourcing strategy, vendor selection, contracting, and management and governance.

"The life cycle is a critical area to plan and manage, regardless of whether organizations source their IT services through internal or external resources," Ridder says.


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