Some applications might not yet be primed to take full advantage of the capabilities of cloud computing, and this can ultimately raise the price tag.
"In our case, we made the assumption that the ERP programming was sophisticated enough to take advantage of all the processors, memory, caches, storage devices and network connections that the cloud configuration offered," Thirsk says.
But it wasn't, and the college invested a "considerable amount" of application developer and systems programmer time to revise the software code. "So far, we have seen a 30 percent increase in performance, but it wasn't free," Thirsk says.
Rent and utilities
The cloud can introduce IT executives to expenses that normally don't come out of the technology budget. These costs might not be initially evident to IT organizations that are accustomed to having internally hosted systems.
"There are, of course, many costs associated with hosting a system internally, but not all of them, like power and rent, are paid out of my IT budget," says Jonathan Alboum, CIO at the U.S. Department of Agriculture's Food and Nutrition Service (FNS). "With cloud, these basic infrastructure charges are baked into the overall cost, so I'm now paying for some things that previously didn't come out of my IT budget."
FNS has been using a cloud service from Amazon.com since the summer of 2010 for an application that supports the agency's Supplemental Nutrition Assistance Program (SNAP), which used to be known as Food Stamps.
The program, called the SNAP Retailer Locator, provides an online map that helps people find retailers that accept SNAP debit cards. FNS opted for the cloud for this application because it allowed for a quick launch of the program and was highly scalable, among other reasons.
Alboum says he needs to ensure that he has available funds to cover the new monthly costs. "Overall, [the cloud] is very manageable and likely results in overall lower costs for the government," he says. "But it is different than what we've traditionally experienced."
It's not a matter of the cloud service costing more than in-house hosting. "I think of this as a cash-flow issue," Alboum says. "If I'm going to pay monthly costs, I need to have available budget to cover those costs at the time I incur them. In the more traditional model, I would purchase hardware and associated services in a lump sum when I had the budget. The new model is likely less expensive, but requires a change to budgeting practices."
Pilots and setup costs
Be aware that free pilot programs for cloud services can quickly turn into expenses.
"Many providers offer free pilots, with various approaches about when these free pilots turn -- automatically -- into paid services," says Frank Ridder, research vice president at research firm Gartner. "Some pilot schemes are very short."
Before undertaking any pilot program, organizations should negotiate all contract terms and minimum discounts that are due if the pilot is successful, Ridder says.
Setup costs are another area to look out for. "Clients often get attracted by cheap ongoing [service] prices, and do not see the sometimes high transition cost, integration cost, etc.," Ridder says. For a service like email, these costs can be easily $10 to $30 per seat, he explains.
Much about the cloud is still relatively new, and experts say organizations evaluating cloud services need to look at both the costs and potential benefits. In a report on cloud services in April 2011, Gartner noted that IT executives "should take steps to manage inherent risks and unexpected costs during the cloud services revolution."
The services and cloud sourcing are "immature and fraught with potential hazards," Ridder notes. "Cloud computing is driving discontinuity that introduces exciting opportunities and costly challenges. Organizations need to understand these changes and develop realistic cloud sourcing strategies and contracts that can reduce risk."
He says the services sourcing life cycle includes four main elements: sourcing strategy, vendor selection, contracting, and management and governance.
"The life cycle is a critical area to plan and manage, regardless of whether organizations source their IT services through internal or external resources," Ridder says.
Bob Violino is a freelance writer in Massapequa Park, N.Y. You can reach him at email@example.com.