Written by Henry Ijams, Managing Director, PayStream Advisors |
August 30th, 2012
How much can your company save by utilizing cloud based procurement solutions?
I recently presented a Coupa webinar focusing on calculating the total cost of ownership (TCO) for cloud-based applications. While cloud computing has been around for a while, there seems to be some confusion surrounding exactly what cloud computing is and how companies can benefit from applying it.
Most of the challenge stems from evaluating different cost elements of cloud solutions and comparing costs to traditional software deployment. Until the internet age, technology was always delivered using on-premise licensed solutions. What differentiates the cloud from traditional deployment is who manages and delivers the solution. In today’s Cloud, a third party vendor manages not only the application, but the deployment and the hardware.
If your procurement applications are on-premise, your company manages everything from the application to the hardware, software and upgrades. As you know, this can be a big investment in IT time along with commitment of capital. On the opposite end of the spectrum with cloud-based solutions, the vendor manages everything, allowing your company to focus on the core business of making the software deliver business value. Somewhere in between traditional in-house and cloud based solutions lie hosted services where your company and your vendor share responsibilities.
Graphic: The Transition of Enterprise Software to the Cloud
The benefits of cloud computing are widely promoted and include the ability to have access to the most current services, improved configurability, reduced costs and access to new services and applications that are constantly updated. The Cloud provider is willing to offer a much lower upfront cost with confidence that they will continue to win your business by continually improving the application.
In order to see the true cost and payoff of on-premise versus cloud-based solutions, buyers must carefully evaluate the immediate and long term costs of acquiring and maintaining the technology. This includes identifying the cost drivers for procurement automation – both the on-premise costs and the cloud costs. These costs include:
- Hardware and Infrastructure
- Management of the supplier network
- Configuration and Implementation
- Data Migration
- User Training
- Annual Maintenance
Easy to Use TCO Tool
In an effort to simplify the process of evaluating on-premise versus cloud based solution costs, PayStream Advisors analysts developed an easy to use self-evaluation tool. The PayStream TCO calculation tool creates a Cumulative Cost Table that will automatically populate your cost data and graph on-premise vs. cloud development costs.
The TCO Calculation Tool makes it easy to determine which solution – cloud versus on-premise is more cost effective for your company. The tool is designed to help you understand your costs and gain the executive buy in you need.
Formula for Success
The attractiveness of Cloud-based solutions is undeniable; however, without a detailed comparison of the costs, projects can’t get started. Once you have the figures, the next step is to develop a plan of attack to obtaining executive sponsorship. PayStream has worked with innovative companies from around the world to develop successful project launches. In our 12 years of advising clients we’ve identified five key success factors worth sharing:
- Develop a compelling vision
- Utilize the TCO Calculation Tool to realistically calculate your costs
- Build a bullet-proof business case
- Build a realistic roadmap
- Have a risk mitigation plan
If you missed the PayStream Total Cost of Ownership for Spend Optimization webinar, you can still tune in to learn more about how to calculate your TCO for cloud-based applications. It will be posted soon.