By now, many of you have been hearing all the grand talk about cloud computing: how it enables companies to get rid of their IT costs and instead pay by the drink for capabilities provided by an outside vendor—who assumes the worries about upgrades, bugs, versioning, provisioning and all that other nasty stuff.

But let's face it—insurers are not going to abandon the systems (and processes embedded within) that they have spent years building and refining. In many cases, these internal systems provide competitive advantage. And, there are many concerns about data security and customer privacy.

Still, there are advantages to cloud computing and, within the industry, we're likely to see adoption grow in the form of “private clouds” contained within enterprises and close partners and agents. Private clouds will spring from increasingly virtualized systems and service-oriented architectures.

There is a very practical side to cloud computing. David Linthicum, who first coined the term “Enterprise Application Integration” back in the 1990s, and is a noted industry author and speaker, has just published a book entitled Cloud Computing and SOA Convergence in Your Enterprise: A Step-by-Step Guide, which discusses the business case for considering cloud.

Dave observes that while cloud computing offers compelling economics, it isn't always the most cost-effective option. He outline eight steps to determine your readiness for cloud:

1) Understand the existing business and IT issues. Where are the pain points, and can cloud address these issues?

2) Assign costs. What does the existing IT infrastructure cost in terms of hardware, software and skills, and how much are issues with this infrastructure costing the business?

3) Model “as is.” What does your current IT infrastructure look like?

4) Model “to be.” What will things look like when your cloud strategy is introduced?

5) Define value points. What is important to the business, such as operational cost reduction, preserving capital or innovation?

6) Define hard benefits. How much revenue can be directly linked to your IT infrastructure? An example might be an e-commerce site.

7) Define soft benefits. These include tough-to-measure benefits such as customer or employee satisfaction.

8) Create the final business case. This should include a clear understanding of current issues, how much money these issues are costing the business, proposed improvements, and the hard and soft benefits these improvements will deliver.

Joe McKendrick is an author, consultant, blogger and frequent INN contributor specializing in information technology.

Readers are encouraged to respond to Joe using the “Add Your Comments” box below. He can also be reached at

The opinions of bloggers on do not necessarily reflect those of Insurance Networking News.

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