While cloud revenues are still growing at impressive rates, some companies’ investments in cloud computing have declined in recent months. This deceleration provides a good opportunity to consider the key questions a CFO should be asking regarding cloud investments.
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1. Why Am I Migrating to the Cloud?
In all cases, there has to be a business justification for migrating to the cloud. There are certainly technical benefits to migrating to the cloud but that isn’t my area of expertise, so I won’t be covering those in this article. The one area I will cover is the promise of cost savings. In every case, I will look at the investment dollars required compared to the benefits received and ensure that I have a positive return.
A common mistake that I see in the analysis of costs and benefits in any project is that they are aggregated at too high of a level. For example, consider an organization that wants to migrate to the cloud. Do you detail the costs and benefits of migrating the entire organization? Or do you get more granular and look at individual applications and workloads? In my experience, the more detailed the better. That detail will supply the information you need to prioritize your list based on the impact to the organization. And remember, that impact can include technical impact, business impact, and financial impact.
2. What Investments Are Needed?
The most obvious investment is procuring cloud storage. However, there are other investments needed to optimize your investment in the cloud. For example, you may need to rewrite or optimize applications and workloads for migration to the cloud. You may also want to create and implement analytics to help you manage your cloud consumption more effectively.
In other words, this isn’t merely a drag-and-drop exercise. You need to set aside investment dollars and time to optimize your new environment.
You also need to consider what you do with your current hosted environment. You might need to invest to optimize the remaining hosted applications and how you manage them. For example, you might need to consolidate data centers, retire servers, and have fewer people managing your infrastructure.
3. What Contributed to the Recent High Growth?
COVID-19 propelled major investments in digital transformation. To minimize business disruption, companies had to quickly enable work-from-home setups and migrating to the cloud was one investment that contributed to their success in this regard.
Now, don’t get me wrong. The pandemic did not create the demand for cloud computing. The demand had been there. COVID-19 just changed the cost-benefit analysis. Suddenly, one of the benefits of migrating to the cloud was enabling a company’s ability to continue to serve its customers. This created a surge in demand for cloud services. Additionally, all of the hyperscalers benefited with very impressive growth rates as companies migrated their most critical applications to the cloud.
4. What’s the Current Situation?
Many of the finance chiefs that I speak with continue to believe in the business justification behind migrating to the cloud. However, because of the surge in demand caused by the pandemic, we’ve all seen investment requests coming in at a faster pace than we expected, and we haven’t seen costs leave the organization at an equivalent rate.
Many of us are trying to strike the right balance between (1) continuing our cloud migration journeys and (2) delivering the cost savings that were in our business cases.
CFO View of Cloud Spend
There’s still a lot of computing that has yet to be migrated to the cloud. I have no intention of stopping a migration to the cloud, but I do want to ensure that I’m spending dollars in the right place at the right time, and that I’m getting the cost efficiencies that I expected. While the surge in demand created by COVID-19 has slowed, there is plenty of room for continued growth in cloud spending that will benefit not only the hyperscalers but also the companies migrating to the cloud — as long as they are experiencing a positive return on their cloud investments.
