The Business Benefits and Risks of Cloud Computing

Benefits of Cloud Computing
Why should businesses move to the Cloud? What benefits does this technology provide? Let's take a closer look.

Reduction in Capital Cost and Smarter IT Spending
Cloud Computing can help business leaders spend capital money more intelligently. Organization's IT budgets are usually bucketed into two main areas. The first area is towards support of basic applications and its infrastructure like e-mail, etc. The second area is building new applications towards support of new business capabilities.
Every organization's goal is to minimize the first and maximize the second. Cloud Computing can help towards achieving this objective. It does not require any upfront investment cost towards building of servers and its associated software. Cloud Computing becomes an operating expense rather than a capital expense because you are charged only for resources utilized.

Organizations can then spend those dollars more wisely.
Cloud Computing's "pay as a service" model also enables organizations greater
visibility towards their IT spending. Organizations can monitor what cloud service providers are charging. This enables
organizations to calculate and make better judgment on their ROIs. Moving applications to the cloud might be less expensive than running it in a firm's own data center.
However, not all applications might be suited to the cloud. One should not think of the cloud as a complete replacement for all your in-house IT needs.

Faster time to delivery
In most organizations, deploying new IT capabilities takes time. This delay often occurs as it takes time to request and deploy IT resources, such as servers and operating systems. If not planned properly, this can result in lost revenues and profits in this competitive landscape. Building applications using Cloud Computing helps in minimizing this delay. Unlike in-house data centers, cloud service providers provide capability to deploy the application quickly and begin running it immediately. There is no need to wait for hardware and software resource allocation for your application.

Lower business risk innovation
New product development and innovation is always a risky proposition for a business. The more a business spends on a new idea, the greater the risk. Cloud Computing can help in reducing this cost. Most innovations begin with a proof of concepts and experiments. This requires a low-cost and commitment to validate a business proposition. Cloud Computing's model of "pay as you go" service is a good candidate for such a scenario as you will be charged for what your application uses. This lets an application start small and incur only small charges.

This model does not require a commitment. If the experiment does not work out, the application can be shut down immediately. If it is a success, it can be easily expanded by requesting more resources from the cloud service provider, making it elastic (scaling up and down). One good example of this model is being used in the pharmaceutical industry where companies are using Cloud Computing to do drug research.

Cloud Computing can make it easier to start small and then grow as needed. Ideas that might never get tested have a chance of being implemented and making a difference for an organization. On the other hand, an organization's capacity to accept failures also increases, improving the odds of finding successful business innovations.

Global Scale and Reach
Cloud service providers run huge data centers in multiple locations around the world. Organizations can take advantage of this global reach and scale. Applications can be moved to cloud at multiple locations to expand the user base and handle a rapidly growing load.

Cloud Computing platforms are elastic in nature. It means your application can be scaled up and down quickly to handle the usage spikes. An application can request more computing resources when needed and then release those resources when it is done. Business only pays for the usage consumption.

Risks of Cloud Computing
Like any other technology, Cloud Computing comes with risks as well. Business leaders should fully understand the implications of adopting Cloud Computing. The main risks associated with Cloud Computing are:

• Outsourcing your applications to a third-
party provider
• Storing data outside your organization
• Vendor lock-in

Let's take a closer look

Outsourcing to an external provider
When an organization decides to use Cloud Computing, it is outsourcing (renting) services from an external service provider.
Unlike conventional outsourcing, where
an entire data center or application portfolio is taken over, Cloud Computing platform lets an organization outsource one application at a time. This enables more flexibility, but it does not eliminate risk.
Outsourcing means partnering with another company. What if the cloud service provider does not live up to your expectations? What if they're not reliable, for instance, and your applications are down for an extended period of time? What if they're hard to work with, failing to provide the support or new features? Or what if they decide to exit the cloud business?
Creating an outsourcing relationship, even at the relatively small scale, is like getting married. You want to choose a reliable partner that you know well. You also want to make sure you're happy with the terms of your provider's service level agreement (SLA) and its enforceability. Minimizing your risk requires attention and effort, both during the Cloud Computing vendor selection process and throughout the time you're using its services.

Storing data outside Your Firm
It is all about data. The biggest concern for business leaders in using cloud computing is storing data outside of their organization. How secure the data will be? What happens if any proprietary information gets leaked?

All these concerns are valid and reasonable. It is important to understand what types of data the organization would be comfortable in moving to the cloud. There might be regulatory data that cannot be moved to the cloud based on a country's regulation. If that is the case, organizations need to validate that the cloud service provider meets those compliances (like PCI, HIPPA, etc.)

It is expected that major cloud service providers will not let customers conduct detailed internal inspections of their cloud data centers as it would not be good for the
long–term security of these platforms. Hence, it is strongly advised to build trust with the cloud service provider. It is good to start small and perhaps move non-critical applications to the cloud first. Another approach is to move just the application to the cloud and leave the data on-premise.

The key point is to identify what risks are worth taking with your data. Just avoiding cloud computing based on the fear of the unknown will hinder the ability to achieve benefits of this technology.

Vendor Lock-In
Cloud service providers come in different flavors like IaaS, PaaS and SaaS among others. An application moved to one service provider might be difficult to move to another service provider later. This vendor lock-in can lead to issues down the line. It is good to do due diligence during the vendor selection process. Organizations should make sure that the cloud service provider's footprint meets the technological guidelines of its current application portfolio and its architecture. While every cloud service provider would have some degree of lock-in, business leaders should look for a partner that offers greatest flexibility in terms of moving applications between on-premise and off-premise.

Conclusion
Is a Cloud Computing platform right for every application? The answer, of course, is clearly no. But can using a Cloud Computing platform sometimes bring real business benefits? Yes.Cloud Computing has moved forward to become a mainstream technology. All organizations should be looking into it seriously.

Mohit Nigam is a Manager with Hitachi Consulting. His client list includes multiple Fortune 500 companies across many verticals, including healthcare, transportation, financial, high technology and the communication industry. The author can be reached at mohit.nigam@hotmail.com.