Traditional ROI calculators do an ineffective job of measuring the value of cloud services. This white paper serves as a guide to calculating cloud ROI using seven metrics you may not have considered.

1. WHITE PAPER
As organizations
struggle to identify and
measure cloud benefits,
this paper serves as a
guide to 1) calculating
cloud ROI using seven
metrics you may not
have considered, and
2) discusses how to
assess where cloud use
makes the most sense.
How to Position
Cloud ROI
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WHITE PAPERHow to Position Cloud ROI
Table of Contents
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Measure #1: The Speed and Rate of Change.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Measure #2: The Speed of Provisioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Measure #3: Flexibility of Usage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Measure #4: Capacity Utilization Enhancements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Measure #5: Access to Business Skills and Capability Improvements . . . . . . . . . . . . . . 6
Measure #6: Increased Margin and Cost Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Measure #7: Total Cost of Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Take Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

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WHITE PAPERHow to Position Cloud ROI
Executive Summary
How do you measure the return-on-investment of
the cloud?
Almost everyone wants to know: InformationWeek’s 2014 Cloud ROI surveyi
found that nine out of ten respondents are somewhat concerned, concerned
or very concerned about cloud costs (see Figure 1 for a more detailed
breakdown), and 80% of companies using or evaluating cloud computing are
somewhat to highly likely to calculate ROIii
.
Yet few know how to measure the cloud’s benefits, such as those enumerated
in the table below, accurately. InformationWeek also found that only 23% of
respondents were “highly likely” to calculate ROI.They concluded:“Financially,
however, companies still are struggling with the right way to calculate the
payback; how to measure the cloud’s value in speed, cost and staff focus; and
how to assess where cloud use makes the most sense.”
Other studies support that idea.An IDG Enterprises survey found that more
than one in three IT leaders (37%) are concerned about the difficulty in
measuring return-on-investment and assigning an accurate economic value
to cloud solutions (second only to security).The difficulty arises because
the changes the cloud brings to the IT equation aren’t one-for-one; they’re
transformative.They change the equation at its root, which means we must
evaluate cloud ROI from new perspectives.
Benefit Comment ROI Measure
Fast startup For applications that are already cloud-enabled or services that already exist,
moving to the cloud can be almost instantaneous.
Speed of change, rapid provisioning
Scalability Cloud allows users to scale up or down as needed to meet corporate needs.
Cloud computing works well for seasonal demands and projects that vary in
scope and size.
Dynamic usage
Agility Cloud services can quickly evolve to meet business needs, without requiring a
major re-engineering effort.
Dynamic usage, capacity utilization
Lowered capital
expenditures
Cloud services bill based upon usage with a flat-fee scale, eliminating large
initial capital expenditures.
Total cost of ownership (TCO)
Lower support costs Support is included with the services, eliminating the need for dedicated IT
support staff or internal help desks.
Margins,TCO
Reduced user
expenses
Cloud services require little more than a browser-equipped PC. Margins,TCO
Innovation Increased ability to create rapid DevOps and testing environments for new
ideas and solutions.
Capability improvement
If you’ve been struggling with this question, here’s your guide to calculating cloud ROI using seven metrics you may
not have considered.
Figure 1.

4. WHITE PAPERHow to Position Cloud ROI
2
Measure #1: The Speed and Rate of Change
To what extent can you speed up transitions from old
capabilities and deployments to new ones?
In a rapidly shifting marketplace, business must be able to capitalize on new
opportunities quickly or risk being bypassed by other companies with superior
agility and flexibility. In this regard, the cloud soars: the cost of adoption/de-
adoption is lower in the cloud because the process is simply faster and reduces
both delays and decision costs. According to RightScale’s 2015 State of the
Cloud Report, over half of respondents (57%, up from 52% in 2014) indicated
that faster access to infrastructure was a prime benefit of the cloud, and nearly
as many (48%) indicated faster time-to-marketiii
.
“Speedy provisioning is not the only big concern,” said Christian Lappin,
TierPoint Senior Sales Engineer. “You have to be able to provision resources to
the right workloads quickly. That is one of the biggest mindset changes we have
seen from customers lately. The conversation is no longer about whether to
adopt the cloud. Now businesses ask: How can we utilize the cloud in the most
strategic way to get the right workloads the right resources at the right time?”
The easy availability of scalable, on-demand resources also means that
businesses can experiment and take small-scale risks with new ideas without
an excessive outlay of money or time. Additionally, previous constraints around
capacity and cost fall away, leaving companies light and nimble enough to move
forward at the true speed of business.
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5. WHITE PAPERHow to Position Cloud ROI
3
Measure #2: The Speed of Provisioning
How quickly can you provision or decommission
resources and infrastructure on an as-needed basis?
Closely related to the first measure, here we’re talking about something more
specific: the cloud enables businesses to scale consumption to meet demand
in real-time. In fact, provisioning time can plummet from weeks to just hours.
Cloud consumers value this benefit: IDG reports that 39% of IT respondents
name “speed of deployment” as the top objective behind cloud investments,
matched only by lower total cost of ownership (c.f., Measure #7)iv
. It’s only
sensible to include this measure in any evaluation of cloud ROI.
Consider: an on-site data center requires capital expenditures that must account
for usage needs over the next three to five years before IT can see any ROI.
CTOs must exercise nearly prophetic abilities to understand where their needs
will fall, and more often than not, one of two scenarios result: they invest in
resources to meet maximum need, leaving many resources (and money spent on
those resources) wasted under normal usage conditions; or they underestimate
their needs and constantly struggle to maintain service levels. Either way,
expanding or contracting remains difficult and expensive, if not impossible.
Figure 2 illustrates what we mean by both the first ROI measure and this
one: resources can be deployed to meet demand in a fraction of the time
traditionally required, as can entire cloud-based solutions.That “value added”
section represents the ability of your business to accurately meet customer
needs with neither waste nor shortfalls in service.
Figure 2.
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6. WHITE PAPERHow to Position Cloud ROI
4
Measure #3: Flexibility of Usage
How well does elastic provisioning and service
management target real end-users and real business needs
for functionality as the scope of users and services evolve?
Businesses can make dynamic usage of rapid provisioning in order to meet
needs faster (and better) than is otherwise possible. Instead of forcing your
solutions to conform to existing logistics and infrastructure, you can adapt
dynamically and deploy instantly to create better solutions for your customers,
faster. This is especially important for seasonal businesses or others that are
prone to workload spikes.
In other words, businesses can use the benefits behind the first two ROI
measures to use the cloud to power services in new and inventive ways. In fact,
according to Gartner, while IT staff and managers name cost reduction as the
primary driver behind cloud investments, CIOs and IT Directors actually name
“modernization”, “innovation” and “operational agility” as primary drivers.v
There’s another side to this: through automated technologies like auto scaling
and load balancing, the cloud “can more efficiently manage [customers’] peak
load capacity,” says Deloitte.vi
As a result, usage can be dynamically matched to
actual demand.This is the scalability of the cloud, which 57% of respondents to
RightScale’s 2015 State of the Cloud Report see as the cloud’s top benefit (an
increase from 53% in 2014).vii
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7. WHITE PAPERHow to Position Cloud ROI
5
Measure #4: Capacity Utilization
Enhancements
To what extent does the cloud enable access to new skills
and on-demand solutions?
Consider the following example, visualized in Figure 3. Let’s say an application
has a steady-state utilization of 1,500 sessions, with occasional peak bursts.You
set an auto scaling trigger (e.g., latency on the Web server of X seconds over
5-minute period) to adjust the number of sessions to the exact number of
instances needed to run your application – you neither fall short during peak
loads, nor waste resources during slow times.
In other words, you can “right-size your instances,” as TechTarget.com writes.”viii
Cloud customers can avoid “having multiple compute instances, multiple
operating systems, multiple database licenses, and complex configuration
of mirror, communication, backups and monitoring.” They estimate that the
reduction in complexity and costs can fall by 25% to 50%.Then, you can
auto-scale your instances:“auto-scaling instantiates more instances of your
application components based on triggers that can be load- or performance-
based.”
In Figure 3, in the absence of auto scaling, any demand above the red line
goes unserviced; any shortfall between demand and the red line generates
wasteful spending. Cloud technologies can correct for both of these situations
automatically and dynamically. Admittedly it may not seem like cloud
deployments can cost-correct so efficiently. In fact, many CIOs seem to believe
that over-provisioning is as necessary in the cloud as on-site, with a recent
survey fromVanson Bourne finding that fully nine out of ten (90%) see over-
provisioning (incorrectly) as a “necessary evil.”ix
Scaling usage appropriately can result in cost savings and increased customer
satisfaction; see Figure 4 to observe where problems can otherwise arise.x
While this graph presents what may be an exaggerated case, it illustrates one
key point: capital investments and evolving need almost never match exactly, at
least without the speed, flexibility and technological enhancements of the cloud.
Figure 3.
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8. WHITE PAPERHow to Position Cloud ROI
6
Measure #5: Access to Business Skills and
Capability Improvements
To what extent does the cloud enable access to new skills
and on-demand solutions?
“The cloud enables business users to focus on their strengths,” explains John
Holland,TierPoint SeniorVice President Sales.“You don’t need a deep IT bench
provisioning servers. Instead have them focus on your users, your applications,
so that you can do what you need to do to grow your business.Then take all of
that daily care and feeding and shift it up to a cloud provider who will ensure
user experience is maintained.”
Cloud providers’ staff specialize in a way that in-house data center operators,
who must multi-task to meet wide-ranging requirements, often cannot.When
you combine that level of dedicated expertise with the emerging, dynamic
technologies that can be leveraged in the cloud (as discussed above), it
unleashes potential many IT departments wouldn’t ordinarily be able to even
consider.With the ability to deploy new development and testing environments
at will, IT personnel can focus on creating new, improved solutions with
no hardware purchase or setup required.The cloud enables businesses to
experiment and expand operations easily and with little risk, which in turn
generates the kinds of outcomes enumerated in Figure 5.xi
Figure 5.
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Figure 4.

9. WHITE PAPERHow to Position Cloud ROI
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Measure #6: Increased Margin and
Cost Control
To what extent can you pursue new customers and
markets for business and revenue growth and service
improvement?
As a solution that can be completely customized and dynamically scaled in
real-time, the cloud presents more of a totality of a solution.“Cloud customers
rarely have to worry about getting that square peg into a round hole,” explains
Lappin.“When you do that, you’re always going to have some specific access to a
solution that’s not needed, or you’ll lack access to one that’s not accounted for.”
Once users are able to select, design, configure and run infrastructure and
applications best suited for their needs, it optimizes the total cost of ownership.
That’s partially because all of those costs have traditionally been de-coupled
when IT projects are handed off to production services. In cloud computer
environments, they are joined together.They also incorporate many soft
benefits, including reduced downtime, improved performance, fewer security
incidents, more efficient backups, faster disaster recovery, and often the more
responsive and expert service that comes from access to specialized business
skills and capabilities (c.f., Measure #5).
In fact, the way the cloud saves money isn’t always obvious.The idea that the
cloud just saves money across the top is misleading; it’s really time coupled with
hard money benefits combined with soft money benefits. For example, when
you opt away from the cloud, you have the hardware, infrastructure (power
and cooling is always one of the biggest line items), and then you have to put
the equipment somewhere; if you have dedicated servers capable of doing
only one thing, you’re going to end up with server sprawl in order to meet the
totality of your needs.The cloud, particularly when combined with virtualization
technology, eliminates or minimizes all of that – and it furthermore moves you
into a largely fixed-cost model without the huge fluctuations that come with
building an in-house enterprise data center.
As you can see from Figure 6, costs generally (though not always) fall over time
no matter how you parse it, but it’s not always at equal rates.xii
Costs fall more
rapidly with cloud deployments because of all those marginal cost savings —
from infrastructure like power and cooling to equipment to networking and
inter-connects — adding up.The result is an increase in profit margins that only
grows more dramatic the longer you live in the cloud.
Figure 6.
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Measure #7: Total Cost of Ownership
How much does the total cost of ownership (TCO) fall in
the cloud?
In many ways, this is the major measure of the cloud’s true ROI – almost all
of the others measures build up to this one. And many IT leaders seeTCO
as the typical measure – nearly half (44%) of respondents to a Gartner survey
indicated that cost reduction is the main reason for investment in the cloud.xiii
However, there’s more to this picture than meets the eye, andTCO may be more
misleading than you think.
Capital Expense versus Operational Expense
For Measure #6, we discussed how the expense outlay works for traditional
data centers versus the cloud. Instead of swapping out servers every three
years and seeing a huge uptick in spend, you have a fixed monthly cost with the
cloud. Instead of trying to utilize everything you have, you push out only what’s
appropriate.
As a result, the cost of ownership gets accounted in a different way entirely.
IT becomes a commodified operational expense rather than CapEx, focused
on outcomes and performance rather than configurations and processes.
It changes what used to be a total cost of ownership into a total cost of
consumption, something that is invariable cheaper and easier to measure as
well. Or, as Deloitte puts it:“Companies buy computing literally by the drink,
converting the cost of computing from capital expenditures to primarily an
operating expense.”vi
What’s the effect on IT budgets? According to GigaOm Research’s 2014 Future
of the Cloud Computing survey, an average of 80% of IT’s average budget is used
to maintain current systems. Shifting to a different model can free up resources.
Total Cost of Ownership versusTotal Cost
of Consumption
This shift in accounting perspective matters because it renders Total Cost of
Ownership calculators for clouds unreliable at best and outright misleading
at worst. Consider Amazon’s TCO calculator; it’s not wrong, but it’s based
on some assumptions that don’t apply to the ways clouds truly cost and
consequently can skew ROI evaluations. For example, it assumes no re-use
from existing resources; yet this is one of the major advantages of cloud
deployments: you can almost always create a configuration that incorporates
resources already at your disposal.

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It also disallows partial amortization and assumes you will fully eliminate
hardware costs, which may or may not be true.When you own the data center,
it’s fairly straightforward to tally the costs associated. But when you consume
rather than acquire a cloud, the way the costs get parsed becomes murkier.
A total cost of consumption approach considers the cost of shared services
stacks and how much of the stacks your apps use.
Why cloud computing ROI tools are of
limited value
And that, in effect, is why typical cloud computing ROI tools are no substitute
for comprehensive due diligence - they are often simple models that just don’t
work. To truly understand and calculate the business values of using cloud
computing - public, private or hybrid - requires a complex and dynamic analysis
that is unique to the problem you’re trying to address.While the ability to avoid
CapEx costs is a great benefit of the cloud, if it’s your primary driver, you’re
missing out on the true value of cloud computing.
The value of cloud computing depends directly on the type of business, business
processes and specific problems you’re looking to solve. Additionally, you need
to determine how much value you truly get from the increased agility and
scalability that are core benefits of cloud-based platforms.
As a result, a simplistic ROI calculator that looks only at hardware and software
avoidance will provide, at best, skewed results. Businesses that buy into the
oversimplified models to determine the ROI of cloud computing are likely to
eventually find out they were way off the mark.They will have invested in cloud
technology where they should not have, wasting money and time. Likewise,
they won’t have invested in cloud technology where it actually was the better
approach for providing strategic benefit.
Ignore those simple cloud ROI calculators, and do the comprehensive due
diligence to understand what you truly need and what you don’t. It takes more
upfront effort, but it pays off handsomely.

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Action Steps
1. MeasureYourself
• Measure utilization among your existing servers for a representative period
of time - say, 30 to 90 days.
• Look at CPU, memory, disk usage and network consumption.
• Re-Size your cloud instances to meet the average utilization measured.
• Don’t worry about usage spikes.
Understanding CPU, memory and disk use over a period of 30 to 90 days
is critical in determining the steady-state utilization.You don’t want to over
or under-size your instances. You want to right-size them to fit your average
use and correlate that use to a key metric such as user sessions. Elasticity is
part of what makes the cloud valuable.
2. Check for Environmental Saturation
Ensure that when all your machines are up and running that they have
not pushed you beyond N+1 [what you need to have in place to keep
operational in the event of a failure].
3. Disaster Recovery Capacity
Look at your current project and workloads running on your production
systems and make sure that your DR site or solution can handle your change
in data growth and system capacity. Often production environments grow
without watching the recovery solution to ensure it can handle a failover
event.

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References
i. Babcock, C. (2014, Jul 31).“2014 Cloud ROI Survey.” InformationWeek. Retrieved February
2015 from http://reports.informationweek.com/abstract/5/12526/Cloud-Computing/2014-
Cloud-ROI-Survey.html.
ii. Babcock, C. (2014,Aug 4).“Cloud ROI:Why It’s Still Hard To Measure.” InformationWeek.
Retrieved February 2015 from http://www.informationweek.com/cloud/infrastructure-as-a-
service/cloud-roi-why-its-still-hard-to-measure/d/d-id/1297746.
iii. RightScale. (2015).“RightScale 2015 State of the Cloud Report.” Retrieved February 2015
from http://www.rightscale.com/lp/2015-state-of-the-cloud-report.
iv. Columbus, L. (2014, Nov 22).“Cloud Computing Adoption Continues Accelerating In
The Enterprise.” Forbes. Retrieved February 2015 from http://www.forbes.com/sites/
louiscolumbus/2014/11/22/cloud-computing-adoption-continues-accelerating-in-the-
enterprise/.
v. Rivera, J. and van der Meulen, R. (2014, Nov 25).“Gartner Survey Reveals That SaaS
Deployments Are Now Mission Critical.” Gartner. Retrieved February 2015 from
http://www.gartner.com/newsroom/id/2923217.
vi. Ferrara, J. (2014, Jul 16).“The Buzz:Top 7 Benefits of Enterprise Cloud – As Reported By The
Enterprises Themselves.” IO.com. Retrieved February 2015 from https://www.io.com/the-buzz-
top-7-benefits-of-enterprise-cloud-as-reported-by-the-enterprises-themselves/.
vii. RightScale. (2015).“RightScale 2015 State of the Cloud Report.” Retrieved February 2015
from http://www.rightscale.com/lp/2015-state-of-the-cloud-report.
viii. Green, R. (2014, Jun).“CloudValue Proposition Heightened With Proper Cost Controls.”
TechTarget.com. Retrieved February 2015 from http://searchcloudcomputing.techtarget.com/
feature/Cloud-value-proposition-heightened-with-proper-cost-controls.
ix. Schofield, J. (2015, Sep 5).“Cloud customers are still paying for twice as much as they need.”
Retrieved February 2015 from http://www.zdnet.com/article/cloud-customers-are-still-
paying-for-twice-as-much-as-they-need/.
x. The Open Group.“Building Return on Investment from Cloud Computing.” Retrieved
February 2015 from http://www.opengroup.org/cloud/whitepapers/ccroi/roi.htm
xi. KPMG. (2014).“2014 Cloud Survey Report: Elevating Business in the Cloud.” Retrieved
February 2015 from
http://www.kpmg.com/US/en/about/alliances/Documents/2014-kpmg-cloud-survey-report.pdf.
xii. The Open Group.“Building Return on Investment from Cloud Computing.” Retrieved
February 2015 from http://www.opengroup.org/cloud/whitepapers/ccroi/roi.htm.
xiii. Rivera, J. and van der Meulen, R. (2014, Nov 25).“Gartner Survey Reveals That SaaS
Deployments Are Now Mission Critical.” Gartner. Retrieved February 2015 from
http://www.gartner.com/newsroom/id/2923217.
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14. AboutTierPoint
TierPoint is a leading national provider of cloud, colocation, managed services
and disaster recovery solutions designed to help organizations improve business
performance and manage risk.With corporate headquarters in St. Louis, MO,
TierPoint operates 13 highly-redundant,Tier III plus data centers located in
Washington state,Texas, Oklahoma, Pennsylvania, Maryland, NewYork,
Massachusetts and Connecticut.
To learn howTierPoint can help with your cloud, colocation, managed services
and disaster recovery initiatives - call 877.859.TIER (8437), email
sales@tierpoint.com, or visit us at www.tierpoint.com.
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St. Louis, MO 63141
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