calculating tco for cloud based applications

Calcula&ng TCO for Cloud-‐based Applica&ons Evaluating Options and Total Cost for Spend Optimization Automation PayStream Advisors August 22 2012 Henry Ijams PayStream Advisors

Henry Ijams Managing Director PayStream Advisors, Inc.

Tony Wessels V.P. Marketing Coupa

Twi8er Hashtag

#TCOcloud

Coupa’s Mission

Delivering software innovation that breeds responsible spending while

impacting the company bottom line.

Coupa’s Explosive Growth

180% Bookings

YOY

+95% Renewal Rate

YOY

150% PlaMorm Usage

YOY

One World, One PlaMorm

10 Languages

40 Countries 100,000 Users

Customers Highlights

Retail Finance Mfg. Health Care High Tech

PayStream Advisors Agenda

•  Cost efficiencies from the cloud •  Four Steps to determine the real solu6on cost

•  TCO Case Study

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PayStream’s unbiased approach gave us renewed con8idence in our ability to foster meaningful change. We accomplished more in 4 weeks than we had in the prior four years. -‐ Myles Kelly, Partner Edward Jones SecuriIes

“ “

About PayStream Advisors PayStream Advisors is a provider of independent research and automaIon assessments for financial automaIon technology to business leaders in finance and procurement.

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Advisory Services

PayStream’s Annual Procure to Pay Summit September 17-‐19, 2012 CharloQe NC 18 Workshops 3 Learning Labs 3 Days of Networking 100% fun!

PayStream Research

What Are We Talking About?

•  Even though Cloud Computing is not a new term, some are confused about exactly what it is and how to apply it.

•  This session is focused on the cost benefits of the cloud.

ApplicaIon runs on-‐premises

Buy my own hardware, and manage my own

data center

ApplicaIon runs at a hoster

Co-‐locaIon or

Managed servers

ApplicaIon runs using

cloud services

“cloud fabric” (elasIc,

infini-‐scale)

From On-‐Premise to Cloud Plaborms

Deployment OpIons for Procurement Apps

You Manage: You Manage: � ApplicaIon � RunIme �  IntegraIon � Database � Server Hardware/Sofware � Storage � Network

You Manage: �  ApplicaIon �  RunIme �  IntegraIon �  Database

Vendor Manages: �  Server Hardware/

Sofware �  Storage �  Network �  MulIple codelines

(separate for each customer)

Hosted Cloud On-‐Premise Vendor Manages: �  ApplicaIon �  RunIme �  IntegraIon �  Database �  Server Hardware/

Sofware �  Storage �  Network �  Single codelines

Cloud Spend Op&miza&on: A Smarter Way To Spend PayStream’s research findings reveal that the benefits of cloud Spend Op&miza&on solu&ons extend well beyond the cost of technology acquisi&on, including:

•  Providing lower transacIon processing costs /fast cycle Imes.

•  Increasing compliance with negoIated contracts and purchasing policies.

•  Providing greater transparency into how the organizaIon spends money.

•  Ability to consolidate spend across the organizaIon.

•  Ability to view spend as it happens and compare it against budgets.

•  ConInuous system upgrades.

What are the cost drivers for Procurement AutomaIon? Cost Driver On-‐Premise Cloud

Sofware 1x Licensing Cost Annual SubscripIon

Hardware & Infrastructure Servers & Databases No fees

ConfiguraIon/ImplementaIon Professional Services Set-‐up fees

Data MigraIon Extensive Minimal

User Training Required Lower Cost – Ease of Use

Annual Maintenance 19 – 20% of Sofware None

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Sof Costs + Gotchas

•  Project Management –  Costs of engaging with IT & Management Approval Process –  Takes Ime away from more strategic tasks

•  The cost of delaying the savings – Most projects never get started –  Thus, savings are delayed or never begin

•  Complex Requirements –  Custom forms, custom fields, custom business rules, mulIple chart of accounts and integraIons

–  Special features can double or triple the cost of a project


•  Cost efficiencies from the cloud •  Four Steps to your TCO •  TCO Case Study

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Four Steps to Calculate Your TCO

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1.   Func&onal Evalua&on and Selec&on Evaluate the features and funcIonality of compeIIve products

2.   Determine your Ini&al/Upfront Cost What are the costs elements of your opIons?

3.   Establish Annual/Recurring Costs How much are the ongoing costs of the soluIon?

4.   Enter data into PayStream TCO Tool/Compare the Op&ons Results analysis automaIcally populated based on your actual figures

PayStream’s TCO model makes it east to determine which solu&on – Cloud vs. On-‐Premise/Network is more cost effec&ve for your company.

One Time Costs – PayStream TCO Model

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Cost Categories Year 1 Year 2 Year 3 Cloud Traditional and

Network Cloud Traditional

and Network

Cloud Traditional and

Network

One Time Costs Software & Hardware

Software License $137,500 Software Upgrades $15,000

Hardware & Infrastructure $35,000 Software & Hardware $0 $172,500 $0 $15,000 $0 $0

Typical Configuration & Implementation: Data migration $0 $75,000

Services Procurement $0 $60,000 Catalogs $0 $22,500

Punch-outs $0 $15,000 $0 $15,000 $0 $15,000 Professional services $0 $175,000

Program management (vendor) $0 $150,000 Training $0 $90,000

Typical Configuration & Implementation: $0 $622,500 $0 $15,000 $0 $15,000 Additional Complex Environments Set Up:

Multiple charts of accounts $0 $0 $0 $60,000 $0 $60,000 Other integrations e.g. HR, Budget $0 $10,000

Custom forms $0 $4,000 $4,000 $4,000 Custom fields $0 $0 $2,000 $2,000

Custom approval rules $0 $3,500 $3,500 $3,500 Additional Set Up $0 $17,500 $0 $69,500 $0 $69,500

Total One Time Costs $0 $812,500 $0 $99,500 $0 $84,500


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and Network


Network




Configuration & Implementation: Data migration $0 $75,000




Configuration & Implementation: $0 $622,500 $0 $15,000 $0 $15,000 Additional Complex Environments Set Up:






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and Network


Network














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and Network


Network













Cost Categories Year 1 Year 2 Year 3 Cloud Traditional

and Network Cloud Traditional

and Network


Network Annual Costs

Maintenance / Hosting / Subscription Hardware / infrastructure maintenance $5,000 $5,000

Software maintenance $27,500 $27,500 Application Support $50,000 $50,000 $50,000

Procure to Pay subscription $650,000 $300,000 $650,000 $300,000 $650,000 $300,000 Req to PO subscription

Expense management subscription Contracts module subscription $0 $50,000 $0 $50,000 $0 $50,000 Payables module subscription

Spend analysis subscription $0 Transaction fees $0 $400,000 $0 $400,000 $0 $400,000

Hosting fees Maintenance / Hosting / Subscription $650,000 $800,000 $650,000 $832,500 $650,000 $832,500

Services & Fees: Supplier enablement $0 $50,000 $0 $50,000 $0 $50,000

Supplier fees $0 $1,200,000 $2,000,000 $2,400,000 Services & Fees $0 $1,250,000 $0 $2,050,000 $0 $2,450,000

Total Annual Costs $650,000 $2,050,000 $650,000 $2,882,500 $650,000 $3,282,500 Opportunity Costs

Savings lost from continued maverick spend $0 $1,250,000 $0 $937,500 $703,125 Savings Lost $0 $1,250,000 $0 $937,500 $0 $703,125

Total Costs $650,000 $4,112,500 $650,000 $3,919,500 $650,000 $4,070,125

Annual Costs

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and Network













Total Costs $650,000 $4,112,500 $650,000 $3,919,500 $650,000 $4,070,125

Annual Costs

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•  Cost efficiencies from the cloud •  Three Simple Tricks to Develop your TCO •  TCO Case Study

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Client Case Study – Fortune 1000 Manufacturer •  $2 Billion Manufacturer of Energy Related

Materials •  Decentralized purchasing

–  Plant managers control material –  Services procurement (45% of spend) black hole

•  ParIally Centralized AP with Imaging –  1,200,000 annual invoices –  Invoices sent directly to plants/regional offices –  Limited EDI/Electronic Invoices

•  Issues/Pains –  Lots of paper/long PO approval cycle –  No visibility to non-‐PO purchases due to –  Poor visibility to who’s buying what –  Late payments/Missed discounts –  Too much manual effort

Manager’s dilemma: Q. How much should we invest in finance opera6ons to automate Purchase to Pay? Q. Will our investment be made worthless by newer technology? Q. What is the best approach to solve our problems?

PayStream populated it’s tool with actual cost informaIon from a manufacturing client.

Spend Op&miza&on TCO Analysis: Case Study of Fortune 1,000 Manufacturer



and Network


Network














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and Network


Network














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and Network


Network














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and Network


Network















and Network













Total Costs $650,000 $4,112,500 $650,000 $3,919,500 $650,000 $4,070,125

Annual Costs

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and Network













Total Costs $650,000 $4,112,500 $650,000 $3,919,500 $650,000 $4,070,125

Annual Costs

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and Network













Total Costs $650,000 $4,112,500 $650,000 $3,919,500 $650,000 $4,070,125

Annual Costs

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Manufacturing P2P TCO Case Study Results

Result: Overall TCO for a Cloud based soluIon is significantly lower than a comparable On-‐Premise/Network soluIon

Year 1 Year 2 Year 3 Procure to Pay Costs Summary Cloud Traditional


and Network


Network One Time Costs $0 $812,500 $0 $99,500 $0 $84,500

Annual Costs $650,000 $630,000 $650,000 $727,500 $650,000 $742,500

Total Costs $650,000 $1,442,500 $650,000 $827,000 $650,000 $827,000

Annual Differerence $792,500 $177,000 $177,000

Total Three Year Savings = $1,146,500

Case Study Results

Result: Overall TCO for a Cloud based soluIon is significantly lower than a comparable On-‐Premise/Network soluIon

$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50

IniIal Investment Year 1 Year 2 Year 3

Millions

On-‐site Development Costs

Cloud Development Costs

Initial Investment Year 1 Year 2 Year 3On-site Development Costs $0 $3,855,000 $3,822,000 $3,987,625Cloud Development Costs $0 $850,000 $850,000 $850,000

Cumulative Total Cost of Ownership

Tip #1-‐ ExecuIve Sponsorship

“Get to yes.”

PayStream’s Success factors of Innovators

q Develop compelling vision of what you

will gain with Spend OpImizaIon

q Calculate a realisIc Total Cost of Ownership

q Build a bullet-‐proof business case

q Plan your aQack & build a roadmap

Download The TCO Tool

www.paystreamadvisors.com

More informa&on

Tony Wessels -‐ Coupa [email protected]

Henry Ijams – Paystream Advisors [email protected]

Coupa World Tour

www.coupa.com

Thank You!

calculating tco for cloud based applications

Technology

cloud services

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cloud computing

cost benefits

cost drivers

cloud fabric data center

cost of technology acquision