Clouds on the Horizon - Part I

Chris Iles, Benoit Wiest

June 5, 2014

  Cloud_Computing_1

Posted by Chris Iles and Benoit Wiest

A prevailing trend in IT, cloud computing brings together high speed internet access, cheap processing power and web programming tools and platforms to deliver IT services in a new way. In the PFM area, the cloud is relevant in large-scale applications such as FMIS, payroll management and procurement systems, as well as tax administration. Organizations of all sizes are excited by the cloud’s promise of meeting variable user demands, reducing operating costs and capital investment, improving application performance and reducing the burden on IT departments. There are also opportunities for developing countries, as they often deal with IT maintenance, capacity and reliability issues which cloud computing could address.

This article is the first of two blog posts which discuss key features of cloud computing, its application in PFM and its significance in developing countries.

What is cloud computing?

Although the term suggests something intangible, cloud computing is actually manifested in large scale physical assets such as hardware, software, storage, communications and secure facilities supported by an array of technical and professional services. What’s new is that these may no longer be at the user organization’s site, but can reside anywhere on the planet, accessible via the internet. Traditional in-house servers and software as well as much of the related management, maintenance and upgrade expense can be replaced with a lower-cost monthly subscription.

The principal characteristic of cloud computing is that it is sold on-demand as a service encompassing components that were previous acquired individually and which are often massively underutilized. The service is generally sold by unit of usage, is scalable to give users as much or as little service as they want, when they need it, and is fully managed by the provider. It is particularly relevant where data needs to be used by different teams operating in different locations.

Cloud service comes in three flavors:

1. Infrastructure as a Service (IaaS) provides processing, data storage and other resources as needed by the customer to deploy their own software.

2. Platform as a Service (PaaS) provides development tools for customers to build their own cloud applications.

3. Software as a Service (SaaS) enables users to access application solutions (including off-the-shelf PFM application software such as GFMIS) which are run and managed by the provider over the internet.

These flavors can be served in various ways:

Public clouds provide shared access over the internet to a single copy of the software while segregating each user’s data.

Private clouds generally provide each customer with access to their own dedicated web-enabled software and databases, hosted by the customer or by a provider.

Virtual private clouds dedicate a segment of a public cloud to a specific customer.

Hybrid clouds combine elements of public and private clouds.

Public clouds offer the benefits of leveraging a provider’s infrastructure to run IT workloads on a pay-as-you-go basis, reducing capital expenditure; private clouds offer benefits such as standardized infrastructure and business processes to reduce operating costs and improve agility. Different applications with different security, cost and performance profiles may be better served on different cloud options and should be evaluated separately.

In the US, the private sector spends the most on SaaS and the public sector spends the most on IaaS, with private cloud being the favored choice of both for delivery.The European Union has just released a call for tenders for a study to consider the economic impact of these various cloud technologies. 

Governments in developing countries that are moving towards the cloud also show a preference for private cloud delivery. There is an argument that eventually almost all applications will be run on public clouds although concerns about regulatory compliance, security and data ownership would have to be overcome before corporate data centers become history. For now a mix of both approaches can deliver the scalability and resilience that are important benefits of the cloud while maintaining control where it is deemed necessary.

The Cloud is gaining traction in the public sphere

As the industry has matured public sector agencies are starting to embrace cloud computing as a model for accessing modern, innovative technologies that can be implemented quickly and flexibly without the traditional large investments in data center hardware, database systems, security, and hosting. Cloud computing can host public financial management applications as well as workforce management, citizen self-service and procurement solutions. Computer Weekly quotes an International Data Corporation research finding that over half of local and central governments across Europe are planning to use or are already using cloud technology. This does not mean a wholesale migration of all applications, but initial resistance is being overcome and the technology is being taken seriously. The UK’s G-Cloud is a mechanism for procuring standardized cloud services which is expected to drive cost savings of £120 million per year together with operational efficiencies by consolidating the vast number of duplicate services that exist across government departments, while delivering public services more flexibly. Started in 2012, G-Cloud is considered to have been a big success for central government and is gradually spreading to the local government sector where it could lead to 20-25% savings in IT costs.

In the United States the federal Chief Information Officer has been advocating the transition from stand-alone computing solutions to cloud-based solutions for a number of years. Despite plateauing recently, spending on cloud services is expected to accelerate in pursuit of reduced IT costs, streamlined business processes and improved productivity.

The significance of cloud for developing countries

The level of cloud adoption in developing countries is generally low. Should this be a concern?

The gap between the deployment of information and communication technology (ICT) in developing and developed regions - the ‘digital divide’ - has long worried commentators. Accessibility of cloud-based solutions, as an extension of broadband services, will inevitably affect the relative ability of countries, regions, economies and societies to benefit from affordable innovative technology.

The trade-offs that affect the calculus of net benefits in developing countries will differ from those in more advanced economies. For example, the benefit of streamlining processes may not be significant where wage costs are a smaller proportion of total cost of ICT ownership, and the practical constraints, such as access to uninterrupted power supplies or technical expertise, are different. Nevertheless, as broadband Internet access is becoming less of a problem in developing countries thanks to 3/4G and extended Wi-Fi solutions, the potential benefits of cloud computing for them are numerous. For example:

- Scalability: replacing per user/per module FMIS licenses;

- Reliability: superseding costly and frail servers with their availability issues associated with     power outages.

- Accessibility: connecting all users, even in remote areas

Encouragingly, the opportunities presented by the cloud are being explored by a number of developing countries including Ghana, India, Kenya, Nigeria, and Viet Nam. Hopefully their pioneering efforts will prove to be the vanguard of a wider movement. The next article will outline the opportunities and obstacles that relate to cloud computing and discuss key issues to be addressed when considering implementing cloud solutions for developing countries.

  Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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