Cloud computing offers substantial IT Cost reductions

CloudComputing.jpgFor many organizations looking to cut costs, changes in technology offer an excellent prospect to reduce IT expenditure while delivering greater value to the business. One such change is Cloud Computing, which Gartner defines as “a style of computing where scalable and elastic IT capabilities are provided as a service to multiple customers using Internet technologies”. Alan Low of Purchasing Index tells SmartProcurement all about its cost cutting abilities.

Historically, organizations tended to buy servers which they networked together to provide knowledge and information to their staff. This ranged from managing transactions – the procure-to-pay cycle for purchases – to providing management information. Inevitably there had to be a certain amount of excess capacity to handle peak requirements, such as running reports at month- or year-end.

To the same extent that organizations can now buy services via cloud computing, businesses now have significant opportunities to cut costs, as they no longer need:
• Hardware – Servers, etc., to run the relevant functions and applications.
• Maintenance costs for these servers.
• People – technical support to make sure this hardware runs optimally and is available as and when required.
• Software upgrades and license fees – as some functionality may now reside in the cloud.

Freed from the above tasks, some IT personnel within the organization can re-deployed to provide more added-value services, such as data analysis, etc. Gartner is predicting that there will be a 25% reduction in IT labour hours by 2015 – “Self-service and automated provisioning associated with cloud delivery means productivity levels for service providers will increase”.

In addition there are some other long-term benefits in adopting cloud computing solutions as traditional data centres within businesses face the following challenges:
• Ballooning labour costs as experienced and skilled personnel become scarcer in the SA marketplace.
• Increasing energy costs, both to run the infrastructure and to keep it cool. Energy costs in SA are expected to keep increasing beyond the current series of annual 25% increases in electricity tariffs.
• Increasing demands of users due to the proliferation of data sources and the need for their integration.
• Increasing complexities associated with trying to get data sources to synchronise with data warehouses and managing data silos that are resident in different Business Units.
• Managing exponential increases in business data, as data becomes richer from both internal and external sources.

Cloud services can often provide a significant reduction in current IT costs while adding tremendous business value to management and staff that are tasked with driving business improvements and cost savings. Many of these services can be financed through operational expenditure (OPEX) rather than motivating for a share of the Capital Budget.

Finally, cloud computing can result in a very attractive return on investment, and a payback period measured in months rather than years, concludes Low.

Alan Low is CEO of Purchasing Index, a company that provides benchmarking and analysis services via the “cloud”. If you would like to comment or discuss these issues, please email him on

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