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Is Your Company a Good Fit for Cloud Computing?
We believe that all companies should evaluate cloud computing/ cloud applications when planning to implement software applications, but specifically companies that historically have demonstrated a good Return on Invested Capital (ROIC). Companies that know how to double their capital investment every 4 – 5 years need to give cloud computing serious consideration.
The reason – businesses do not need to use their hard earned capital to purchase hardware and software. Instead of using capital to purchase hardware and software, companies can re-invest that money back into their business.
When growing companies implement on-premise applications, they design infrastructure to support projected future growth forcing businesses to purchase significantly more than they currently need. Cloud computing gives companies the flexibility to purchase only what they need, when they need it, for as long as they need it.
Let’s get back to the financial benefits of cloud computing versus on-premise solutions. Consider the following example which illustrates the financial benefit for a company that is going to implement a CRM solution for their sales and marketing organization. Let’s assume the following:
- Historic Return on Invested Capital is 15% for this company.
- 100 people need to use this application.
- On-premise assumptions:
- Upfront costs to purchase hardware and software is $65,000
- Labor costs to implement hardware & software are $35,000
- According to Gartner & Microsoft, 80% of the cost of ownership is incurred after purchasing the hardware and software. In this example, on-going maintenance for 4 years is $260,000 which includes hardware & software maintenance fees, labor, and unexpected maintenance.
- Cloud application assumptions:
- Labor costs to implement the cloud application is $20,000
- Per employee subscription fee is $50/month
The following table illustrates the financial benefit of implementing a cloud application versus an on-premise solution.
| Upfront Cost | On-going Monthly Cost | Cost after Year 4 | ROIC After Year 4 | Total | |
| On Premise | $100,000 | $5,417 | $360,000 | $0 | ($360,000) |
| Cloud Application | $20,000 | $5,000 | $260,000 | $139,921 | ($120,079) |
| Cloud App Net Benefit | $239,921 |
After a 4 year period, the cloud application scenario has a net benefit of $240,000. If your company has a proven track record for investing capital, you need to evaluate cloud applications.
Give us a call at 800.487.0044 and let us help you determine if cloud applications are right for your company.