With the rapid transition to cloud applications, many organizations are struggling to accurately compare the benefits and costs of cloud versus traditional solutions. To make an accurate comparison, it is necessary to factor in the true costs of both in terms of processes, breakage, and productivity opportunities.

Traditional solutions such as Microsoft Office retail software need to be upgraded every 3 years and have additional management costs. The deployment process for this software begins with Human Resources identifying a personnel addition, removal, or replacement. From there, an IT manager is made aware of the user change and directs procurement to add software. Procurement obtains the software and hands off the acquired assets to the IT Department for installation. At this point the software is installed and operational, but must be controlled and reviewed.

Cloud software can skip many of these steps and go straight from HR to IT Deployment, eliminating 4 out of 6 steps in the process, saving costs. Cloud software is not subject to breakage such as lost licensing, because all licensing is centralized. Vendors analyze these costs and in the case of Office vs Office 365, we’d expect a baseline 6% cost savings in using Microsoft Office 365 ($337.50 versus $358.50 over 3 years).

This does not factor in the biggest hidden cost to organization in running traditional software suites. The largest hidden cost in choosing traditional solutions is the loss of productivity. Productivity losses occur because end users are running different versions of software, have interoperability and sharing problems, and different features. If we consider a conservative productivity loss of .5% for a $60,000 employee, the price difference between a standardized cloud solution and a traditional solution grows to $337.50 versus $1,258.50 over 3 years. A 1% productivity loss extends the difference to $337.50 versus $2,158.50 over 3 years. For a firm with 50 employees, this pegs the 3 year traditional cost to $107,925.00 versus $16,875.00, a staggering loss of over $90,000!

this table is based on the following time and cost estimates:

  • Microsoft Office 365 costs are based on the Business 12 month plan
  • HR time of 15 minutes, $60,000 salary or $30/hr, cost $7.50
  • Managerial oversight time of 15 minutes, $80,000 salary or $40/hr, cost of $10.00
  • Procurement time of 30 minutes, $60,000 salary or $30/hr, cost of $15.00
  • IT Deployment time of 30 minutes, $100/hr, cost $50.00
  • Asset Management time of 60 minutes, $60,000 salary or $30/hr, cost of $30.00
  • Lifecycle review time of 30 minutes, $60,000 salary or $30/hr, cost of $30.00
  • Office 365 cloud costs based on same costs per hour, but different time intervals
  • Costs to your organization will vary, this serves as a guideline but can be customized
  • Productivity costs are based on the lost productivity of a $60,000 employee over a 3 year span

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