Demonstrating Cloud ROI to the CFO

Bill Gerneglia

CIOs are often left with the task of deciphering very complex technical ideas and concepts for the rest of the C-Suite. One of their most recent challenges has been to explain to the CFO exactly how transitioning to Cloud Computing for many applications will benefit their company. This may at first seem counterintuitive given the promise of cloud computing to reduce capital expenses and the overall corporate IT operational workload.  

There is often some frustration among C-Suite executives because the ROI projections for major IT initiatives are often wrong. Many times the ROI estimate is made by the CIO and represents a best guess that is quickly forgotten once the investment is approved by the CFO and the rest of the C-Suite.

 In many of these misguided estimates the wrong projections are not necessarily due to laziness or the deliberate miscalculation of the economic realities of the investment. Most companies do try to make an honest effort when estimating financial impact, but they simply cannot quantify technology’s contribution to behavioral change or business outcomes.

This is where the CIO can demonstrate some true leadership to the CFO and CEO. The relationship among the CEO, the CFO, and the CIO should improve going forward if certain paths are followed.  This will happen if the CIO is increasingly capable of accurately estimating IT ROI. This will occur by the shift to cloud computing applications which enables the CIO to build vast data warehouses and use the growing pool of analytics tools to better measure the performance impact of many investments. The biggest challenges to date for the CIO is how to best articulate these cloud advantages to the CFO. Now the CIO will have concrete numbers to back up the estimates.

While many executives claim to understand the cloud, there seems to be a gap between what CIOs and the rest of the C-Suite believe the advantages are to cloud based applications. 

Many CIOs acknowledge the agility and automation benefits associated with the private cloud but, in an effort to be convincing, they must present the benefits from a financial perspective to the CFO in order to make these attributes a more compelling business case. 

Selling the virtues of cloud technology isn’t the first time that CIOs have faced technology adoption challenges. In the early 2000s, CIOs were tasked with selling x86 virtualization internally to their CEOs and CFOs. The proliferation of virtualization was met with a great deal of skepticism from many in the C-Suite. To overcome this, IT administrators and CIOs had to demonstrate that virtualization actually meant flexibility, agility and cost savings through the consolidation of hardware. This resulted in CTOs and CIOs collaborating for a common cause to change the opinions of company leaders. Despite this effort, many CFOs and CEOs remained unconvinced that virtualization translated into a smart business investment. 

Moving to the cloud is perhaps a bigger undertaking than virtualization in that it requires people, processes and technology to work together to make it truly successful. Although many companies have migrated to virtualized environments, the task to evangelize it still falls on CIOs, who must continually explain that the deployment aspect is only the first step in their company’s evolution to deliver infrastructure as a value-added, on-demand service to the business.  

However, once the CIO has successfully defined the benefits of cloud technology, they must then demonstrate to senior leadership how its attributes of on-demand Infrastructure-as-a-Service (IaaS) translates to improved operational efficiencies.

According to Jason Cowie, VP of Product Management at Embotics, here are several concrete arguments for CIOs can consider when making a case for cloud and other IT investments with their CFO and CEOs.

Highlight cloud’s competitive advantage.  In addition to being an infrastructure investment, the cloud drives down costs and provides a repeatable, standardized and highly optimized process. CIOs can progress infrastructure conversations by addressing the competitive advantage that cloud delivers through speed to market. By spearheading company-wide cloud readiness assessments of their people, processes and technology, CIOs can determine total cost of ownership, gaps, process improvements, tools and roadmaps to implement cloud service delivery capabilities and related benefits.

Provide answers.  CIOs can attend meetings with their CEOs armed with the aforementioned gap analysis to make the case for how the cloud delivers solutions to company inefficiencies. Examples of these solutions include self-service provisioning, its associated request and approval workflow automation, IT costing and show back (reports on the costs of all virtual assets, allowing business and application owners to increase awareness, understanding and accountability of actual costs required to support the business) and service catalogs associated with the private cloud. Documenting cloud benefits, which align to company goals and provide answers, can be a convincing strategy.

Promote performance improvements. CIOs can take this opportunity to discuss the value of speed, agility and the simplification of data center management. Cloud management solutions can calculate costs, automate routine administrative tasks and help optimize the performance and configuration of the virtual data center. Therefore, CIOs must highlight how the private cloud builds on the flexibility and cost savings the company can gain from moving to a virtual environment.

Focus on energy efficiency. CIOs can also explain how monitoring, measuring and managing IT consumption is a benefit that comes with cloud deployments. CIOs can also educate their leadership about how cloud’s smart provisioning of resources enables IT to be more productive.

Explain how the right solution makes transitioning to the cloud almost seamless. CIOs can provide their CFOs and CEOs with answers on how to select the right cloud management platform, and then use the opportunity to develop business and technical justification. It’s important to emphasize that transitioning to the cloud can be done painlessly, if a company uses the right solution.

By following these steps, CIOs can expect their fellow C-Suite executives to agree on the business case for moving to the cloud.

 

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Bill has been a member of the technology and publishing industries for more than 25 years and brings extensive expertise to the roles of CEO, CIO, and Executive Editor. Most recently, Bill was COO and Co-Founder of CIOZone.com and the parent company PSN Inc. Previously, Bill held the position of CTO of both Wiseads New Media and About.com.

Comments

  • James Lee
    James Lee Friday, 13 July 2012

    It seems to me that the best way to justify new technologies to non-technologist is by having solid cost comparison data. At the end of the day, financial folks want to ultimately know how much it's going to cost. Having good projections can definitely help to prove your case.

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