Determining the true cost of ownership (TCO) of cloud computing isn't always about the numbers. Although firms want to know the out-of-pocket cost for a new or updated technology, determining true cost actually has more to do with the ability to adapt to new processes than it does with adding up the numbers.

Cloud computing, and specifically Software-as-a-Service, offers competitive advantages to your firm by making it more agile or nimble in the way it offers solutions to help clients with their accounting, tax and other issues.

Here's one way to look at it: Which would you rather do business with - a company that helps its customers operate more efficiently, or a company that offers little flexibility and few ideas for future growth? Although this is a rhetorical question, we all know there are providers who do not care about changing their outlook, or, more than likely, do not know how to go in a new direction because they do not have the smarts, or leadership, to figure it out.

In terms of the accounting profession, think of the firm that is mired in old ways of doing business - the one without any kind of client contact other than just prior to busy season. This is the firm that offers little to its clients other than functioning as a processor of basic information.

Conversely, firms using software solutions from providers whose infrastructure is based on the cloud or outside the firm's physical walls demonstrate their forward-thinking ability to be nimble or agile in the way they help clients solve problems.

So here's the question stated a different way: How much is it worth to your firm to be more agile?

It would be negligent not to acknowledge that any conversation about the TCO of the cloud must focus on the hard numbers, but the numbers do not tell the whole story. Following are several concepts that must be considered to determine the "true cost."

TCO Concepts

TCO is all about understanding the entire financial impact of a technology through its lifecycle, so it does not matter if the software is updated and maintained by the provider or physically located on a firm's own server.

Instead, firms will want to know how cloud computing makes them more efficient by looking at the impact on the bottom line. For example, did the firm maximize its non-billable time by letting the provider maintain the latest version of the software, rather than installing and maintaining it themselves?

Licenses matter. To determine the true cost of a service or software, a firm must also factor in the cost of database and application licenses - something often overlooked or even an afterthought when determining TCO, yet very important to know for complete accuracy. The cloud is usually priced as a rental model and by user count, so licensing structures for cloud services and software will definitely be different - not necessarily lower, just not the same.

Focus on growth strategies. Infrastructure costs, as well as upgrades and maintenance, are usually lower in the cloud than outside of the cloud because those costs are essentially eliminated. As a result, firms will want to think about re-allocating budgets to areas that help their companies grow, instead of spending money on, for example, areas previously consumed with maintaining in-house solutions.

Training costs are spent more wisely. When firms look at the cost to train staff on new or updated applications and services, the resources involved in installing and learning how the software is maintained inside the firm are eliminated through cloud computing. As a result, firms can make training quicker and easier, enabling them to spend more time getting value out of the application.

Look for smart providers. We all want to work with accountants who will help us operate our businesses more efficiently or lower our tax liability; these are experts who demonstrate their knowledge and experience in even the most difficult situations. Similarly, working with quality cloud providers who become valued business partners will also help determine the true TCO, because the provider will have a more vested interest in helping the firm make important decisions concerning the overall solution. In turn, the firm trusts the provider because of the elevated "partner" relationship.

Looking at Solutions

To find the best resource, start by looking at the components of your business management solutions that are easily and effectively managed on the cloud, such as customer relationship management or bill payment, then look for these three traits:

1. The technology was built for the cloud, rather than an on-premise desktop application that was updated to work over the Internet.

2. The provider has a written service-level agreement with a clear understanding of how and when credits will be issued if the site goes down.

3. You have references to call that use the service the same way you plan to use it, preferably similar-size firms with similar services. Of course, where the firms are located doesn't matter!

In addition, firms should look for cloud companies that partner together to provide solutions that benefit the firm by bundling the capabilities. For example, consider the accounting and financial management provider who partners with security and disaster recovery providers. The advantages are clearly given to the firm because the firm will not have to look elsewhere for complementary solutions.

Also keep in mind the cumulative "speed of innovation" and value derived from bundled SaaS solutions. Many on-premise companies are now releasing major updates once every two-to-three years, compared with quarterly major updates (and often monthly minor updates) from SaaS vendors. Time-saving, productivity-increasing enhancements are more difficult to measure in terms of TCO, but firms are certainly benefiting when multiple SaaS applications are on-boarded as a total, bundled solution.

Accountants are taught to look beyond the numbers to deliver solutions that are based on more than the ledger. Consequently, determining the true TCO is more than just adding up the numbers; it's about the overall impact on the firm and spending more time solving client problems. Firms that understand this key premise will be the true winners.

This article originally appeared on webCPA, Accounting Today's website.

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