Government CIOs see expected cloud cost savings evaporate

After comparing notes with my Gartner colleagues on recent discussions with clients, it’s becoming clear that government is rarely realising significant savings from cloud services.

The expectation among CIOs and business leaders that savings can be achieved by making rapid moves to adopt cloud computing is not as simple as it sounds. A review of some recent evidence would certainly seem to support the view that these expectations are indeed overly simplistic and unrealistic.

Many government business leaders perceive cloud computing as providing the means to lower costs and improve service — often choosing to proceed without first seeking approval or even involvement from the IT department. It seems that cloud has become the panacea for perceived high cost and low responsiveness of IT.

Vendors have successfully targeted the CFO and other c-level executives with claims of providing a potential solution to budget problems through reduced IT expenditure and, in some cases, an alternative sourcing option. This is, after all, what clients want to hear during periods of severe fiscal constraint combined with increasing demand.

We’ve seen cases where financial managers, acting on advice from vendors and others, applied immediate reductions of 15 per cent or more to IT budgets.

Such expectations are rarely achieved, and transitioning to the new environment and/or decommissioning existing/legacy services are seldom taken into account or separately funded. Such decisions, founded as they are on hearsay and marketing hype, have the potential to create enormous risk to government services.

It’s no surprise that cost saving remains the number one reason that organisations cite for a move to the cloud.

There is mounting local and international evidence, however, that government agencies following cloud-first policies haven’t achieved the anticipated cost savings, and they are finding the transition more challenging and time consuming than expected. They may also be struggling to integrate cloud-oriented operational practices into their existing internal processes.

There is also some indication that part of the disparity in outcomes between the commercial users of cloud and government users may relate to the imposition of more challenging performance and contractual requirements on vendors.

It may well be that these additional conditions act so as to offset many of the financial and other benefits associated with cloud computing.

Cloud benefits are bigger than savings

While considerable focus has been on the potential savings achievable from cloud computing, the real benefits are arguably in other areas. These include time to deploy new solutions, scalability to avoid costs by preventing the over provisioning of capacity, and elasticity to meet fluctuating workloads.

Both cost avoidance and cost reduction represent potential savings to the organisation, but only the latter can truly deliver a smaller IT budget. The former is often used to help justify the business case in support of new initiatives.

Several vendors have told us that they have attempted to help clients do better by advising them of inefficient usage patterns and failure to leverage cloud capabilities or minimise their costs.

Despite these efforts, it would seem that many customers seem unwilling to change their operational procedures – for example to switch off compute power for test and development environments when not needed.

This lack of willingness to change operational practices or failure to exert adequate management oversight and control over the new landscape, may help explain some of the disparity between the expectations and the reality.

Evaluating the benefits of cloud programs can be difficult due to inadequate asset management and a lack of understanding of the true extent of cloud services being deployed within an organisation.

An organisational strategy, an inventory of cloud services and a capable asset management process are essential in order to avoid monthly user charges rising over time.

Poor management and/or operational practices may well see any potential savings quickly erased, and worse, cloud computing could actually represent a higher-cost platform compared to traditional technology solutions.

Align benefits with strategic objectives

Many government CIOs are responding by making quick, tactical choices to achieve compliance with cloud-first directives and, consequently, are compromising the opportunity to maximise the potential savings or realise other benefits from cloud computing.

The most prevalent myth about cloud computing is that it always saves money. The United States government busted this myth following an audit three years after implementing a ‘cloud-first’ policy.

There are many other reasons cited for migrating to the cloud, such as increased agility. However, a long and/or complex procurement process combined with onerous contractual requirements will equally erode the agility benefit as much as any cost savings.

Failure to establish appropriate operational and investment practices creates an environment that complicates a government CIO’s ability to make more considered and strategic decisions, ultimately inhibiting broader support for cloud adoption.

Take a pragmatic approach to risk management

Complex compliance regimes and approval processes often exist in government, and CIOs are expected to follow routine operations to ensure that the outcomes do not deviate from the stated government policy or practice.

Risk management, auditing, finance, legal and emergency planning departments all seek to devise and influence policy decisions to cover all potential aspects and eliminate risks wherever possible.

This wins the approval of elected officials who want to maintain the confidence of citizens by minimising any project or policy failure. Concerns over data privacy often dominate the public debate. Reducing risk to zero however is unrealistic, and ultimately slows down the innovation needed by governments and their agencies in their digital journey.

Government CIOs developing a cloud strategy should therefore consider how to bring these groups on board. They are vital to reducing the overall complexity of the implementation of cloud computing and must be encouraged to adopt a pragmatic approach to risk management rather than risk elimination.

In general, reducing or eliminating risk comes at a cost. That cost reduces savings, flexibility and can compromise innovation. As a consequence, many of the benefits anticipated may well evaporate.

Establish an overall cloud strategy

Weak or absent cloud adoption strategies relevant to an agency’s specific context can hinder the CIOs ability to leverage cloud computing to deliver benefits to the overall organisation. It can also lead to the ad hoc procurement of stand-alone solutions by business units.

The ability for any part of the organisation to procure cloud computing and the lack of enterprise control or strategy will almost certainly result in reducing organisational efficiency over time.

Technical architectures become stretched, information architecture becomes more problematic and costs increase due to the larger number of applications having to be integrated, often at short notice.

It is vital that CIOs raise this issue and gain the understanding and support of business leaders to prevent any lack of strategy and/or compliance leading to a failure to consider the impact on exiting or future legacy applications.

Another common assumption about cloud is that it represents the ideal platform to support the conversion of legacy systems. However, re-platforming such systems on cloud should not be assumed to be simple.

In very many cases, it is likely that the business benefits will not justify the cost and risks associated with the transition. It is also rarely the case that CIOs will have the spare capacity in the schedule that allow such conversions take precedence over other demands.

“If it ain’t broke, don’t fix it,” is a mantra to which most CIOs would subscribe.

Nevertheless, cloud computing is certainly threatening the existing architectural patterns on which most legacy systems are based, and CIOs would be well-advised to prepare for this future transition.

Glenn Archer is research vice president on Gartner’s public sector team, advising Gartner's senior government clients globally. His research focuses on digital government. Prior to joining Gartner, he was the Australian Government's Chief Information Officer.