The Real Costs of Cloud Computing

Smart companies plan ahead to avoid gotchas that can blow holes in their budgets.

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Hidden costs can also crop up if applications aren't primed to take full advantage of the capabilities of cloud computing.

"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 revising the software code required a "considerable amount" of application developer and systems programmer time. "We have seen a 30% increase in performance, but it wasn't free," he says.

Rent and Utilities

IT executives who move systems to the cloud might encounter another unexpected cost if they suddenly find themselves paying expenses that wouldn't normally be their responsibility.

"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 the 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."

Since the summer of 2010, the FNS has been using an Amazon.com cloud service to host an application that's offered through the agency's Supplemental Nutrition Assistance Program (SNAP), which provides the benefits that used to be known as food stamps.

The tool, called the SNAP Retailer Locator, provides an online map that helps people find retailers that accept SNAP debit cards. The FNS decided to put the application in the cloud because that setup allowed for a quick launch and was highly scalable, among other reasons.

Since he's using a cloud-based service, Alboum has to pay new monthly costs and take a new approach to budgeting. "Overall, [the cloud] is very manageable and likely results in overall lower costs for the government," he says. "But it is different from 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 explains. "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. The new model is likely less expensive, but requires a change to budgeting practices."

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 cloud model is "immature and fraught with potential hazards," says Gartner analyst Frank Ridder. "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."

The cloud sourcing life cycle includes four main elements: sourcing strategy, vendor selection, contracting, and management and governance, says Ridder, adding, "The life cycle is a critical area to plan and manage, regardless of whether organizations source their IT services through internal or external resources."

Violino is a freelance writer in Massapequa Park, N.Y. You can reach him at bviolino@optonline.net.

This version of this story was originally published in Computerworld's print edition. It was adapted from an article that appeared earlier on Computerworld.com.

Copyright © 2011 IDG Communications, Inc.

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