Advice and Information for Finance Professionals

Cloud Delivers 3.2x ROI in New Value Research

Rudolph Lukez
Director, ERP Product Marketing, Oracle

A newly published independent analysis has calculated a dramatic increase in the return on investment (ROI) for Software as a Service projects. It found that SaaS applications provide 3.2x the ROI as on-premises software.

The new study, “Cloud Now Delivers 3.2 Times More ROI”, was completed by Nucleus Research. It reflects the dramatic momentum of cloud solutions over the last few years, as more organizations discover the benefits of leaving behind their on-premises systems and moving to the cloud.

This marks the third in a series of similar studies from Nucleus Research. Their first study, published in 2012, determined an ROI of 1.7x. Four years later the second study showed an increase of 24 percent to 2.1x. The new 3.2x finding is impressive in terms of the percentage increase in less than two years: 50 percent higher than the value calculated in 2016.

Get the report from Nucleus Research.

Aside from their large and growing population of real company data to support the new calculation, it is worth considering the other factors driving this analysis. Nucleus looked at the baseline differences between cloud and on-premises projects—hardware, licensing, customizations and user adoption—and highlighted the continued improvement in cloud applications, including better design, deployment and delivery. Perhaps most importantly, they noted how concerns about security have all “but faded” as cloud providers invest more in their infrastructures and applications.

Nucleus also noted two important calculations typically used when analyzing project investments: payback period and total cost of ownership (TCO).

Payback in 7.5 Months

A cloud project pays for itself in 7.5 months. This, reports Nucleus, is 9 months less than a typical on-premises project (which can sometimes grow into multi-year efforts). Sometimes firms prefer payback calculations since this value connects an investment over time.

For many companies determining a less-than-one-year payback on a technology investment is a huge plus. Projects that require staff time and financial resources spread over years is not a positive or desirable experience. It is easy for big on-premises projects to get very expensive, with mission and scope creep outpacing initially planned deliverables.

Lowering the Total Cost of Ownership

Nucleus also re-examined their previous calculations, first published in 2016, regarding the TCO of cloud solutions when compared to on-premises systems. They determined that cloud systems cost 2.3x less than on-premises. Some companies prefer to use TCO calculations since this method considers upfront, ongoing, and periodic costs associated with a specific technology or project.

TCO calculations also better account for unexpected circumstances after the initial investment is completed and the project is in production. These values can be used to better compare other technology costs, such as soft and hard ancillary expenses. With a currency-based value, finance professionals and company leadership across the C-suite can quickly relate comparative costs when viewing different projects.

Three Ways to Win the Game

When discussing technology investments, companies use different approaches depending on their experiences and project finance methodologies. The Nucleus Research report readily highlights the three most common bases for deciding to approve a project: ROI, TCO and payback.

With these three analytical bases loaded, just like in a game of baseball, there is major opportunity to hit home and win big with cloud applications on your team. The new report once again highlights why cloud solutions are the money ball for every enterprise that wants to invest in tomorrow’s ERP, today.

Learn more in the Nucleus Research report.

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