Acta Informatica Pragensia 2016, 5(2), 162-179 | DOI: 10.18267/j.aip.922137

Evaluation of Cloud Computing Hidden Benefits by Using Real Options Analysis

Pavel Náplava
Center of Knowledge Management, Faculty of Electrical Engineering, Czech Technical University in Prague, Technická 2, 166 27 Praha 6, Czech Republic

Cloud computing technologies have brought new attributes to the IT world. One of them is a flexibility of IT resources. It enables effectively both to downsize and upsize the capacity of IT resources in real time. Requirements for IT size change defines business strategy and actual market state. IT costs are not stable but dynamic in this case. Standard investment valuation methods (both static and dynamic) are not able to include the flexibility attribute to the evaluation of IT projects. This article describes the application of the Real Options Analysis method for the valuation of the cloud computing flexibility. The method compares costs of the on-premise and cloud computing solutions by combining put and call option valuation. Cloud computing providers can use the method as an advanced tool that explains hidden benefits of cloud computing. Unexperienced cloud computing customers can simulate the market behavior and better plan necessary IT investments.

Keywords: IT infrastructure, Cloud computing, On-premise, Real options analysis, Net present value, Total cost of ownership, Volatility, Flexibility

Received: October 16, 2016; Revised: December 10, 2016; Accepted: December 12, 2016; Published: December 31, 2016  Show citation

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Náplava, P. (2016). Evaluation of Cloud Computing Hidden Benefits by Using Real Options Analysis. Acta Informatica Pragensia, 5(2), 162-179. doi: 10.18267/j.aip.92
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