Despite the buzzwords, vaporware and hype, the cloud is real and it is happening. The remote hosting of applications like SAP’s IBP solution is quickly becoming accepted as a standard infrastructure alternative for projects in IT departments everywhere. For those of us used to large scale enterprise-wide IT projects, the world is swiftly changing. Projects will not look or feel like they used to. They will be smaller, tactical and faster. As a result, customers will demand a faster return, but they will also be able to tolerate more risk. So how best to build a business case with this new reality?
New ROI Math
The business case for IT projects has always been difficult to quantify. While projects were enablers, it was always difficult to track down the true benefits of a multi-year project with a scope the size of an APO implementation. Applications hosted in the cloud have a different reality. Since the overall investment is smaller, risks are easier to take, and benefits do not need to be paradigm shifting to justify the spend.
The reduced expense of ongoing maintenance also impacts the ROI. Since the vendor owns the hardware and the software they also own the responsibility for its upkeep. This means less headcount from IT, no server leases, no software upgrades. The elimination of these tasks changes the ROI equation dramatically, regardless of any benefits realized. These changes tip the balance towards the benefits side of the equation. Now realized benefits have more of an impact than the sunk cost of hardware and maintenance. Since these are ongoing costs, it can really help the ROI on the positive side.
There is one more question of cloud projects. Since you do not technically own the software or hardware, is this an expense or a capital project? More to the point, what is it exactly that you own? When you run software in the cloud, the great thing is that you don’t worry about system ownership, but the bad part (potentially) is that you don’t own anything. So where this sits on the balance sheet is one question, and where does this fit in your IT policy is another. It’s a nuanced point, but potentially a significant one depending on the organization.
Payback Needs to be Immediate
When hosted applications are the norm, the buy-in is small and the expectations are high. Advantage customer. With little skin in the game it becomes exceedingly easy to pull the plug on any project at the first sign of smoke. So the rewards on the business case need to have immediate impact. This means a successful business case is front loaded. With big impact up front you earn the right to keep going and realizing benefits for the foreseeable future.
Gone are the days where you needed to be a few million dollars in before a dollar in savings was realized. In the world of a cloud based project, benefits can be realized right away, and that should be the expectation. With a hosted architecture it is easy to get in and, more importantly, it is easy to get out. So fire your best shot right away and buy yourself more time to make it perfect later.
Try Before You Buy
Rapid development has been around for a while, but it has never been more relevant than it is with a cloud based solution. With the infrastructure ready to go it is all the more important to get moving right away and start realizing those benefits. That means start simple and start now. Get up and running with the simple core solution and then build on that. In fact, with some solutions like IBP you don’t even need to go “live” until you want to go live. So run in parallel, start small and build. But whatever you do, start fast, start now and keep moving forward.
This also makes for quite a compelling business case. For minimal investment, a company can try a solution and get in and out without any real damage if it doesn’t work out. That means a business unit can take a chance on a solution, see if it meets their needs and decide fairly quickly whether or not it is worth any further investment. This is a totally different world from the ECC or APO days where millions needed to be spent before dollar one can be saved, but it rewards those that can make an impact right away.
With SAP’s shift towards cloud based supply chain solutions like IBP on HANA, the market is taking a dramatic turn towards hosted applications. Buzz words like “software as a service” and “cloud” are becoming main stream and vaporware is becoming real. Comparisons of vapor and cloud formations aside, it’s time for the cloud and it’s time to figure out how to make a business case and how to make it stick. It’s time to be nimble, move fast and move first. Those that can make the impact now will reap the biggest reward in this cloud based environment.
Authors note: please note, the absence of any references to “storms brewing,” “winds of change,” “lightning rod” or any other rain, storm or weather based analogy in this article on cloud computing. It took quite a bit of restraint. Thank you.