Cloud Computing and Modelling of Cash Flows for Full vs. Fractional Adoption of Cloud
Proceedings of the International Conference on Business Management & Information Systems, 2012
Cloud Computing and Modelling of Cash Flows for
Full vs. Fractional Adoption of Cloud
Easwar Krishna Iyer, Venkatesh Tilak, Varuna Narayanaswamy and Tapan Panda
Great Lakes Institute of Management, Chennai
E-mail: easwar@greatlakes.edu.in; venkatesh.tilak@greatlakes.edu.in; varuna.narayanaswamy@greatlakes.edu.in; tapan@greatlakes.edu.in ABSTRACT
This paper does a revenue–neutral cash flow modelling for fractional cloud computing adoption. The aim is to find out a mathematical fraction, other things being equal, for which the Net Present Value (NPV) maximizes with respect to cloud adoption. The impact of both deferred capital expenses and reduced operating expenses on NPV are treated in the model.
The paper posits that the revenue generation and growth of the firms under consideration are independent of the way the
IT resources are managed between cloud vs. traditional.
In addition to NPV modelling, the paper also examines the fraction of the total product /solutions options that can be moved to the cloud today from the total universe of IT assets by running a statistical analysis of data collected from a vendor sample space.
Keywords: Cloud Computing, Fractional Cloud Adoption, Revenue-Neutral NPV Modelling, Capital vs. Operating Expenditure
Introduction
Huge capital outlays for setting up 3600 Information Technology (IT) infrastructure have always been a deterrent for firms, particularly new ventures, from the optimal capital utilization point of view.
Firms would prefer to use up their precious high-cost initial seed capital to build assets that drive their revenue growth. In such a capital constrained scenario, any option of deferring capital investment will ease out the initial cash flow pressures and help in better Net Present Value (NPV) modelling. Modern business paradigms like leasing, asset co-ownership and infrastructure
Cloud Computing and Modelling of Cash Flows for
Full vs. Fractional Adoption of Cloud
Easwar Krishna Iyer, Venkatesh Tilak, Varuna Narayanaswamy and Tapan Panda
Great Lakes Institute of Management, Chennai
E-mail: easwar@greatlakes.edu.in; venkatesh.tilak@greatlakes.edu.in; varuna.narayanaswamy@greatlakes.edu.in; tapan@greatlakes.edu.in ABSTRACT
This paper does a revenue–neutral cash flow modelling for fractional cloud computing adoption. The aim is to find out a mathematical fraction, other things being equal, for which the Net Present Value (NPV) maximizes with respect to cloud adoption. The impact of both deferred capital expenses and reduced operating expenses on NPV are treated in the model.
The paper posits that the revenue generation and growth of the firms under consideration are independent of the way the
IT resources are managed between cloud vs. traditional.
In addition to NPV modelling, the paper also examines the fraction of the total product /solutions options that can be moved to the cloud today from the total universe of IT assets by running a statistical analysis of data collected from a vendor sample space.
Keywords: Cloud Computing, Fractional Cloud Adoption, Revenue-Neutral NPV Modelling, Capital vs. Operating Expenditure
Introduction
Huge capital outlays for setting up 3600 Information Technology (IT) infrastructure have always been a deterrent for firms, particularly new ventures, from the optimal capital utilization point of view.
Firms would prefer to use up their precious high-cost initial seed capital to build assets that drive their revenue growth. In such a capital constrained scenario, any option of deferring capital investment will ease out the initial cash flow pressures and help in better Net Present Value (NPV) modelling. Modern business paradigms like leasing, asset co-ownership and infrastructure
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