When you are one of those businesses which are still to make a transition to the cloud, there can be many reasons for it. It could be because you are hesitant to give up control over your own environment. It could also be because you are waiting for more cutting edge technologies to arrive and impress you further. Finally, it may be because you have still not been able to justify the costs of migration to the Chief Financial Officer or the CFO. The CFO is usually the one who needs a lot of convincing when you decide to migrate the business to the cloud.
Why is it necessary to Convince the CFO about Migration Costs?
Almost all businesses are considering adoption of cloud computing technologies but in spite of this momentum, financial models which are supposed to show the impact of such a transition are still not convincing enough. The costs for migration and the time taken for it are still quite uncertain and typically understated. A reason for this could be that businesses fail to recruit financial experts who are equipped to understand the technologies and processes needed for making a migration budget. There is no map that one can follow and companies are impulsive and unplanned when it comes to migrating to the cloud. The truth is cloud migration is anything but simple.
What are the costs involved in Cloud Migration?
During migration there are three types of costs which a business will be expected to deal with. To start with, there will be the existing infrastructure and application costs. This will include the direct and indirect expenses of deploying and maintaining on-site IT hardware. The direct costs relate to the hardware, software and their licenses, warranties, maintenance contracts, materials and spare parts, labor, storage etc. Indirect costs imply loss of revenues or productivity because of outages. Secondly, there are pricing calculators which help with understanding needs for virtual storage, servers etc and even include details like networking and labor costs. Here, most companies make most mistakes because they do not include the internal headcount needed for running the cloud infrastructure.
Finally, there is the cloud migration cost which includes costs of shifting the system and data to a cloud. This is performed either across the Internet or through physical devices like the Managed Amazon Cloud Service Snowball. You need to keep time aside for this transition and also decide whether to go for a “lift-and-shift” method or a complex refactoring method. According to Forrester reports in 2016, almost half of migration costs were due to labor and not because of platform or infrastructure. Besides, businesses often use migration software and use system integrators for the move and such costs have to be included.
When you are the CTO or Chief Technology Officer in an organization you have the task of deciding on the infrastructure which is best suited for your operations. However, these ideas may not align with those of the CFO’s. This is because the CTO may not have knowhow of the financial effects of such an important operations-related decision. He is usually more concerned about benefits like workflow efficiencies or personal re-allocation etc. It is the CFO who has the final task of ensuring that the company’s decisions about financial matters are justified and correct. So, it is necessary to first convince the CFO about migration costs when you are pushing for such a major IT change.
– To start with, you must first understand your existing IT-related costs. So, you need to know the expenses which your business is currently undertaking for technology infrastructure and qualified personnel. When you know this amount, you can go to the CFO with a proposal for the cloud. You can then state the cost savings which the business will get to enjoy following such a move.
– You should also analyze all the possible cloud solutions and undertake research on these before approaching the CFO. This means you must make a case in favor of cloud migration before him, highlighting both intangible and tangible benefits like scalability, flexibility, cost savings etc. Perhaps the biggest benefit of choosing cloud migration is transition of Capex to Opex. So, businesses will not have to spend fortunes on costly hardware any more. Instead, costs will be broken down in the form of monthly fees. This feature will appeal to the CFO since he will appreciate a consistent budget and he can conveniently include these costs in the company’s overall budget.
– You should avoid having a tech talk with the CFO. Chances are high that your CFO will not be from a technical background. Therefore, explaining intrusion detection system, hypervisors, MPLS etc must not be feature in your proposal. You have to focus on operational advantages and roadblocks and how this change can help the business in general. If you get into the technicalities of cloud migration, you will end up confusing him.
So, your task will be to explain to the CFO how cloud migration costs are justified because this move will transfer company costs to Opex from Capex. This in turn will change monthly costs and annual costs, something that you must explain. You need to mention additional risks, if any, in case cloud transition happens. You need to show which risks can be eliminated when you invest less in individual hardware and outsource the hardware. You will finally need to explain how cloud migration will cut down your costs in the long term and offer more flexibility for business opportunities. CFOs will alwys be encouraged and driven by numbers. This is why you must come prepared with a lot of hard data. It is important to show him the differences in current costs and costs which it will have to bear after migration to the cloud.