How To Explain The Costs Of Cloud Computing To Healthcare Execs

How To Explain The Costs Of Cloud Computing To Healthcare Execs

Written by Joe Cannata

Posted on January 7, 2019

How Much is Spent Worldwide on IT Costs?

Worldwide IT costs in 2018 hit an estimated $3.7 trillion, up 4.3 percent over the prior year, according to the Gartner, Inc. With so much at stake, it’s essential for all companies that utilize IT to consider the pros and cons of a traditional IT approach versus moving more and more functionality to the cloud. Finance considerations are one of the top considerations, but control over assets and data security are also vitally important. Therefore, it’s essential that the CIO is prepared to talk about the differences in language other executives can understand.

Why It’s Difficult to Explain Cloud Costs to the C-Suite?

CIOs sometimes have a hard time explaining the difference between cloud services (typically a SaaS with monthly operating expenses) and traditional healthcare IT models that may involve paying cash for software and equipment to own them outright (a capital expenditure). This comparison needs to factor in the monthly cost to run on-premise data centers, as well as the allocation of capital expenditures, such as hardware, licensing, etc. Non-financial factors include company policies that favor ownership versus rental models for IT hardware and software. Unless the cloud expense is much higher, the C-suite should lean toward cloud economics as a more strategic approach. It governance policies may also need to be revisited to support cloud computing trends.

Moving from a Cost Center to Strategic Partnership Model?

Healthcare organizations deliver healthcare services but are also digital companies. Cloud computing is now a critical component that brings the latest technology to the table, perhaps improving outcomes. It’s essential to help the C-suite understand this. One analogy that works is comparing it to another service based on consumption. Just as the utility or electric bill varies based on actual consumption, cloud computing cost varies based on changing usage. Building an accurate forecast prepares the leadership team for the hit to OpEx and the P&L. It may still be a tough sell, and the IT team might need some finance talent to track and adjust usage trends to keep the cloud cost forecast up-to-date.

How Can a Flexible OpEx Model Help Healthcare IT?

If a healthcare company needs to change directions fast to incorporate new diagnostic tools, therapies or IT innovations, an OpEx model is the fastest way to respond. Many times, the CIO is seen as someone holding fast to a traditional CapEx model or as someone rushing change before the organization is ready. Instead of letting the decision point be a source of contention, a mix of CapEx and OpEx could be the best answer. In this hybrid model, the decision to use a cloud-based approach versus a traditional on-premise solution would hinge on individual decisions about risk management and financial requirements, resulting in a variety of local and managed private cloud services as well as public cloud services.

What are Some Convincing Tactics for other Executives?

The difference boils down to buying software and hardware at once or paying a subscription. To show healthcare executives the advantages of the cloud, CIOs must demonstrate the benefits of the OpEx (or hybrid) model in a quantifiable way. For example, consider the CapEx model for buying a piece of hardware. The hardware has to be secured and configured, and the terms and conditions must be approved by the legal team before software can be installed. You put out a lot of hard-earned cash and wait months to actually use the product. The process takes months and ties up precious resources. In the cloud model, new solutions are available quickly without the headache of in-house configuration and maintenance. It also gives organizations the ability to scale down as well as up. This agility is something that’s easy to forget because most people associate cloud migration with scaling usage up.

How Can Cloud Solution Be Included in ROI?

Include the following in the calculation of ROI: increased productivity (concentration on core functions), cost reductions, security, network, data storage, and transfer improvements. In a healthcare organization, access is key to improving patient outcomes. It’s important to show how each of these items translates to the ROI. If you can do this effectively, the rest of the C-suite is likely to fall in line with a cloud model.

What Preparation is Needed Before Talking to the C-Suite?

Before speaking to a C-suite individual, the CIO should prepare a model showing the ROI. The presentation should include technical data on cloud-based models that are clearly understood. Documenting a cloud strategy defines the outcomes sought by the CIO, and it’s the beginning of a road map to get there. The CIO’s roadmap should describe how the cloud model will save cost and add efficiencies while improving security and networking reliability. It also has to conform to HIPAA regulations.