True Costs and Efficiency Gains of the Cloud
Charles Black, CEO of Nasstar plc, discusses the benefits of cloud computing for small businesses
Every experienced business owner knows that one of the hardest things to predict is sales. Inevitably turnover forecasts made in rookie business plans turn out to be wildly over-optimistic triggered by a need to attract backers and by a natural sense of optimism for the new venture. Costs, however, are a lot more predictable. At least in theory.
Admittedly, certain costs can be volatile (think of fuel, raw materials, certain labour expenses etc), but surely one of the most straightforward to predict is what the business needs to spend on its IT? The answer, I’m afraid, is more complicated.
Any new venture just starting out will no doubt have budgeted for the obvious IT costs, such as PCs, laptops, servers, tablets, printers connectivity etc.
But on top of equipment bills, you must also add in the cost of software licences and support. For most new businesses, the bulk of the software spend will be for Microsoft licences, however, many businesses will have to run some specialist bespoke programs. These can be expensive, and of course there’s also a budget for staff training.
And if your enterprise has already reached a certain size, there’s the added cost of the salary of your in-house IT expert, who typically earns over £32,000 a year. Someone has to recruit this person and manage them.
So far, these are easy items to budget for. But there are many that are much harder to quantify but should be factored in when working out the true costs of IT.
First there’s the cost to your business from system downtime. From working in the IT industry for many years, we know that PCs crash for about 35 minutes a month for most businesses. OK, it’s a small amount of lost production for an individual, but you can see how much time is lost when you start to work it out across your staff base. In fact, for an employee earning £35,000 a year losing 9 hours equates to lost production of £163 in wasted wages.
It’s not only a waste of wages; you should factor in the lost opportunity to make money out of that dead time. Obviously it’s not easy to put a figure on this lost value, but if your firm lost a key client or sale that resulted from the IT system crash, this could represent a catastrophic loss of value. Think how of many sales would be lost if a giant online retailer lost a major IT hub and couldn’t process payments? According to Infonetics, 51 hours of down time equates to 3.6% of turnover, or £36,000 for every million in sales.
As a cloud computing provider, we know a lot of the benefits of working in the cloud are often uncosted by our clients. For example, we ask them to consider how much time is taken up in the IT procurement process and what might this cost. Most have never given these a line in their budgets as it simply didn’t cross their minds. Who manages the IT purchase and delivery and what does that cost?
We also ask them to consider what they might or do spend on the services of IT consultants or outside advisors, and work out what these might be. From experience we know both of these can be significant amounts of money. For example, the average consultant earns over £50,000 per annum.
Other ‘intangible’ costs, or unbudgeted costs, might include the cost of disposing redundant equipment legally and in line with the WEEE Directive. And as systems age, how much time of the in-house IT manager is spent running around making running repairs and temporary fixes. Many of these costs come nowhere within the remit of the bean counters and are invisible on business balance sheets.
Based on feedback, we estimate we save most cloud computing clients at least 30% of their IT costs, as a minimum. But on top, ask yourself what inbuilt data back up and integrity and always running the most up to date iteration of your software is worth to your business?
Moreover, think of the productivity gains the ‘always on’ generation produce for the business, able via their phones or blackberries to work extended hours in order to get the job done. And if they are working in the cloud, the difference between ‘at work’ and outside of it virtually disappears.
This is why moving to the Cloud makes so much sense, and helps businesses have predictable costs of IT, and of course the peace of mind from 99.99% system uptime.