What CFOs need to know about cloud computing

by Darinia Khongwir    Jul 17, 2013

Cloud computing

The Chief Financial Officer (CFO) needs to wear many hats in this fast-paced economy. Information Technology is now at the top of the CFOs’ agenda—according to Gartner, 26 percent of IT investments require the direct authorization of the CFO and 42 percent of IT organizations now report to the CFO. A study conducted by Oracle and Accenture found that CFOs are becoming increasingly aware that technology is a growth enabler and cooperation with the Chief Information Officer (CIO) is vital for the company’s growth. The study examined the changing role of the CFO where 84 per cent said cooperation with their CIOs is imperative to the company’s financial growth.

CFOs also placed increased importance on understanding and leveraging disruptive technologies such as big data, cloud computing, mobile and social media as growth enablers. And while the CIO community has become well versed in the concept over the past few years, cloud computing is still an area that mystifies the CFO in particular. The promised financial and business benefits of cloud computing are great, but CFOs must be well informed in order to spot risks and make the best decisions for the long-term business and financial health of their organizations.

TCO versus ROI

The criteria associated with evaluating the total cost of ownership (TCO) associated with a cloud solution, and its eventual return on investment (ROI) need to be thought through. Although it’s tempting to believe that a subscription or usage-based fee is all inclusive, today’s reality is that it is almost certainly not the full extent of the investment. Two factors in particular will complicate the TCO analysis:

• Legacy systems: Applications share many resources including data, storage, networks and systems. Consequently, moving an application to a Cloud-based solution will not necessarily eliminate the costs associated with running that application internally. Migration costs associated with training and stimulating end-users to move to new applications also need to be factored in along with costs (and risks) that will be incurred as old equipment and systems are disposed of in a secure and environmentally-compliant way.

• Public, Private, Virtual-Private: Public cloud comes with the benefit of significantly reduced operating costs. However, risks associated with shared platforms and the potential data breaches means most are likely to move to private cloud, where the applications and technology utilized are on a dedicated, restricted and private technology platform that can only be accessed by their company. In this model, the cost dynamics change significantly and may include many of the costs that would be associated with more traditional IT deployments.

Risk management

The disruptive nature of cloud, its ability to change the fundamental operating rules for IT and for business, means that there is inevitably the potential for significant impact on the areas of governance, compliance and risk. The prominent concerns today revolve around the risks associated with third party applications. Outsourcing information systems inevitably requires sharing data with a third party firm. In some scenarios, this data is stored in datacenters located in different regions around the world.

As cloud solutions are selected and deployed by an enterprise, CFOs may need to establish new processes and policies to ensure that a cloud service provider meets all industry standards and security requirements. Closely linked to the issue of compliance, is the issue of data security. For many CFOs and CIOs this is the primary concern associated with moving to a cloud-based solution provided by a third party. Many cloud vendors understand this concern, and operate better security solutions to protect information from unauthorized access. In addition, different types of cloud solutions—public, private and hybrid—offer different levels of security protection. And arguably, such cloud vendors may also be motivated to invest in technical and security specialist staff that a normal business IT department would not. The assessment of vendor reliability and quality is important in determining which type of business applications can and should be moved to the cloud along with a determination of what type of cloud solution to leverage.

Collaborative effort

The key to success will be building in sufficient flexibility to ensure that decisions made early in the journey can be readily adapted to meet future needs. This only reinforces the need for CFOs and CIOs to work collaboratively on developing a strategic and financial roadmap for making the transition to cloud technology. The better the strategic planning up-front, the more successful the transition will be in maximizing the benefits and minimizing the risks of cloud.