Why cloud computing ROI tools are worthless

Most tools miss the point of the cloud, relying on simplistic assumptions that can lead you astray

With the rise of cloud computing comes a rise in tools and models that estimate the cost benefit of the technology. Most are created and promoted by cloud providers that sell their services, and a few come from analysts and consulting organizations. Whatever their source, their ROI calculations are based on the same assumption: Cloud computing avoids hardware and software investments, and because you pay only for the resources you use, the cost of those resources should align directly with the amount you require.

Those assumptions sound great, but the resulting ROI calculations are drastic oversimplifications of the problems the cloud is there to solve. In fact, these ROI calculators confuse businesses about the real value of the cloud and mislead both IT and business units.

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The ability to determine the ROI of cloud computing is not a simple modeling exercise, as most people seem to think. 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 domain you're trying to address.

In other words, the value of cloud computing depends directly on the type of business, the core business processes, and the 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.

The bottom line: You can't use a simplistic ROI calculator that looks only at hardware and software avoidance. Anyone who trots out the hoary "ability to avoid capex costs" concept as the primary driver for adopting the cloud simply lacks a clear understanding of how to determine the true value of cloud computing.

Businesses that buy into the oversimplified models to determine the ROI of cloud computing may 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.

So ignore those simple cloud ROI calculators, and do the deep work to understand what you truly need and what you don't. It takes more upfront effort, but it pays off handsomely.

This article, "Why cloud computing ROI tools are worthless," originally appeared at InfoWorld.com. Read more of David Linthicum's Cloud Computing blog and track the latest developments in cloud computing at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.

Copyright © 2013 IDG Communications, Inc.

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