If you sign up for a membership in CAI, I will share with you the AccessTekBusinessSimple (TM) questionnaire that I use with clients for requirements definition and cost/benefit analysis. In addition, Ian Campbell, CEO of Nucleus Research, has given us permission to distribute the latest, greatest version of  his company’s much-requested TCO tool, “On-Premise Versus On-Demand Rapid TCO Comparison.“

We are very excited to be able to make this offer. Nucleus Research is a global provider of investigative, case-based technology research and advisory services that provide real-world insight into maximizing technology value. There is no cost for these downloadable tools. And for our inaugural year, CAI membership is free as well.

The BusinessSimple questionnaire will help you gather the cost information that the Nucleus TCO comparison tool calls for. The questionnaire eases you through the decision making process I outlined earlier. You can set your finance, operations, and management objectives; consider what value you want to add with a new accounting system; and document, rate, and prioritize your functional requirements. This information is the basis of your ROI analysis.

Now you know what you have been spending on your existing accounting system. You have a checklist of what you need. Ask for license and implementation estimates from the on-premise and cloud accounting vendors that interest you. Plug the numbers into the Nucleus Research spreadsheet for a truly “rapid TCO comparison.”

Immediately it calculates and graphs the cost impact of the two options. You will see a three-year TCO for each option and a graph of cumulative costs over six years. You’ll see how much the solution with lower TCO saves you over the option with higher TCO. This can be exciting. I loaded real data given me by a real company; the on-demand solution showed a 45% cost savings.

What really sends me about this version of the Nucleus Research TCO tool is the new analysis section. It calculates and graphs CAPEX, OPEX, and after-tax cashflows for four periods: Upfront and Years 1-3, based on the base costs you entered.

Here’s the icing on the cake. The last section of the TCO tool provides links to free related research from Nucleus, explaining best practices for Business Case Development. It starts with a process flow infographic, then deals with various factors involved in quantifying TCO and ROI completely and accurately.

I will leave you with this take-away point from one of the related research papers,”The strengths and weaknesses of TCO.” It wraps up both sides of its subject by saying that “TCO provides an understanding of future costs that may not be apparent when an item is initially purchased. However, the metric focuses only on cost and companies that rely entirely on TCO end up following a strategy that minimizes expenditures rather than maximizes the return for the company.”

Register now as a Cloud Accounting Institute member to receive these and other benefits to come. Please keep coming back, commenting, and sharing the word with your network. Follow us on:

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Now, with over 20 years of experience in providing technology services to clients, I see it differently. New things come out of old patterns. In computing, the pendulum keeps swinging between two poles: dedicated and shared resources. (Got kids? Watch them flip back and forth between ”That’s mine” and “Let’s share.” Same song, different verse.)

Art Rosenberg got me thinking about this with his “back to the future” blog  on the roots of interactive applications. “As we watch ‘cloud-based’ applications, Mobile UC, and IP networking take over communications between people and business process applications, I find it interesting to go back to the early days of business computers that were limited to premise-based mainframes and ‘batch processing’ with punched cards. That’s when I got involved with enabling computers to support remote end users with keyboard terminals to access ‘interactive’ applications,” he writes.

That was in the days of the dinosaurs, so to speak. As Rosenberg says, “Because mainframe computers were big, slow, expensive, and with limited processing power, it was not practical for individual end users to use computers the way they can now.” Rosenberg helped innovate and market a new concept: time-sharing. This enabled “a number of users [to] share a computer interactively, independently, and concurrently by time-slicing the CPU and swapping active user programs dynamically between secondary storage and main memory.”

Time-sharing programs made the minicomputer commercially viable for companies that could not afford a mainframe. Time-sharing service bureaus extended minicomputer access to companies that could not afford dedicated computing power. The personal computer came along and finally gave dedicated processing power to individuals. Networks enabled personal computers to communicate among themselves and with central servers and to share expensive resources such as applications, storage, printers, and control devices. And so it goes, with the pendulum swinging back and forth between increasing personal control and optimizing shared resources.

The leading edge of this dynamic today is cloud-based computing. Now access is dedicated and the infrastructure is shared, enabling individual users to leverage shared resources for software development, servers, data center infrastructure, support services, etc. at a level they could not afford if they had to acquire and own them individually. Like all the advances that led up to it, cloud computing enables users to do old things in new ways. What makes cloud computing transformative is that it greatly increases the interactive potential of all the people, devices, and processes involved.

The CPA who can work on a file online with his client, the company accountant who can outsource a business process, the small business owner who can suddenly afford Fortune 500-level software capabilities are all beneficiaries of this evolution. As Rosenberg points out, “Time-sharing also introduced the beginning of what we refer today as the ‘user experience’ that has become the focus of good business communications.”

The marriage of something old and something new, something owned and something shared, is bringing new benefits to the light every day.

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The Cloud Accounting Institute is launching its first survey to determine how many companies have adopted or intend to adopt cloud accounting solutions and why (or not). In addition, we want to know how many employees will actively use these applications and whether they are centrally located or use the application from remote locations. This time around the percentages will be the big story, but when we refresh our data at the end of the year, we expect to begin making our own predictions.

If you would like to help us gather this data, please click here to take the survey. Your answers will be kept anonymous and held in strict confidence. We will also reach out to your peers through our LinkedIn account and other groups. Anyone who takes the survey may receive a copy of the results, and you can be sure that I will share them with you here as well.

Thank you for helping to build our view of cloud computing from the ground up.

That said, this is a good time to remind you that there are other ways of following what’s going on at the Cloud Accounting Institute, including these:

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Andrew Hickey’s “10 Cloud Predictions for 2012″ starts out, “Ok, ok. This time it’s for real. We’ve been hearing it for the last four or five years, but 2o12 is it. 2012 is the real deal. 2012 is, for lack of a better term, the year of the cloud.” You’ll see that statement repeated everywhere this year. It’s number 2 on the Top Ten list of predictions in Crain’s Chicago Business, my local source for what business decision makers are thinking. But Hickey is writing in CRN for an audience of Value-Added Resellers and systems integrators. When CRN, with its industry-wide perspective, says that a technology has gone mainstream, it has.

Hickey shows how all the pieces of enterprise-level cloud computing have fallen into place to support the value proposition. You can mix, match, and manage SaaS, PaaS, and IaaS–software, platform, and infrastructure as a service. Cloud storage is becoming the obvious solution to the exponential increase in enterprise data. Acquisition of cloud companies is rampant, hiring is up, skilled development and deployment resources are getting scarce, and certification programs are popping up all over.

If your interest is specifically cloud accounting from a user perspective, you might want to skip ahead to Hickey’s Number 2: Mobile Marries Cloud.  Hickey predicts that “2012 will be the year that mobile cloud services dominate.” Business executives are driving the demand and workplace acceptance of the smartphone as an essential business tool.

Here is what one executive, Craig Stack, CFO of ProKarma, says about mobile cloud accounting. “In November, I was staying at a wonderful villa in northern Argentina in a small town called Purmamarca. I sat down at the pool with my iPad, logged into Intacct, checked out how the business was doing, approved a few purchase orders, and within five minutes I was back to enjoying Argentina at its best. Intacct on the iPad is nothing short of revolutionary – it makes finance fun again.” Questions, anybody?

Ok, so let’s take a look at the second article, Adam Neary’s post on the Accounting Today blog, titled “2012: The year we stop talking about the cloud – and start doing.”  This article is written for accounting professionals, obviously, and the main message is clear from the title. Neary starts by dispelling a lot of the fears – and excuses (his word) – that  justify inaction in the face of attraction.  He doesn’t just blow the smoke away; he lights a fire under his readers by proposing “five actions you can take to dip your toe into cloud technologies. They’ll go a long way in helping you get comfortable with things and more confident in your ability to forge deeper client relationships (which is one of the ultimate goals!).”

And while you are thinking about it, here are Neary’s action steps:

“1. Take advantage of cloud-based backup solutions (i.e., Dropbox) to quell those preliminary “Gasp! Our data’s gone into the cloud!” feelings. Dropbox’s interface and ease-of-use intuitively communicates what the cloud is and how it works.

2. Test remote PC access to save time and money replacing on-site data entry (i.e., GoToMyPC).

3. Save yourself time and hassle by moving clients with expense policies onto a hosted expense report system (i.e., Expensify). This is a great first step as filing a tedious expense report and the pain that goes with it is something virtually everyone can relate to.

4. Start running your clients through a “virus scan” to catch mistakes in their QuickBooks files (i.e., AuditMyBooks). This will help your client’s get comfortable with cloud technologies as well.

5. Explore ways to be more than just the report generator. Web-based turn-key analysis portals that let you and your clients meet in the cloud can provide that “Ah-ha!” moment.”  If you’ve never used an analysis portal, check out Profitably, the company that Neary heads, and take a free tour of their app.

There are a few dark clouds widely predicted as well. Dave McClure, also writing in Accounting Today, notes that “Security is an issue. In a cloud services industry that still does not have a code of conduct, there is little outside of a legal contract to ensure that client data is secure from hacking and other probing eyes. Interestingly, for companies outside of the U.S., the major concern is not hackers but the U.S. government. Under the Patriot Act, data housed on a U.S. server – where most global companies prefer to have their data warehoused – can be accessed or even seized by the government without a warning or a warrant. The government has issued a statement that such concerns are unwarranted, but many companies remain wary.”

As we’ve noted before, the size of the cloud customer is one of the key determinants of whether data is more or less secure in the cloud than on premises. Smaller companies generally enhance security when moving to the cloud with a SaaS vendor. This adds less value to large enterprises that have already optimized IT services.

So Happy New Year, everybody! I hope it is prosperous and satisfying. Please make a resolution to start leaving me comments so that I can finetune this blog to your interests.

In keeping with that, Season’s Greetings from everyone at the Cloud Accounting Institute! We will be taking time off for the holidays and you will not hear from us again until the beginning of the new year.  Come January, I will tell you about our plans for an awards program for cloud accounting project leaders. Make a New Year’s resolution to enter your project!

Improving collaboration seems more intangible than the other two benefits, but it’s not. Here’s what one of our accounting business partners says about it. “Increasing our ability to connect with client data does more than remove inefficiencies from our relationships with clients. It enables us to perform services and provide business advice that actually helps grow the client’s bottom line,” says Kenneth Overholt, CPA, a principal in DiGiovine Hnilo Jordan + Johnson Ltd. (DHJJ). 

DHJJ adopted SaaS to raise its profile as a trusted business advisor by offering additional CFO-type services to clients. For example, Overholt anticipates that many of the firm’s clients with small accounting departments will want to outsource bank reconciliations or other functions where their in-house staffing is too thin to do a proper segregation of duties. In the cloud, the CPA can simply sign on to perform these duties from any web browser, without holding up the client’s workflow and without the CPA waiting for a CD or flash drive to arrive with the records. In addition to solving a difficult problem for a client, this service gets DHJJ involved with the client on an ongoing monthly basis, instead of just at tax time.

This example illustrates why AICPA made a cloud-based workflow between CPAs and their clients central to their vision for transforming client services and increasing the profitability of CPA firms. AICPA’s CPA2Biz platform provides centralized access to integrated cloud-based solutions for core accounting services, bill management, tax preparation workflow, firm-wide workflow automation, and more.

Carrie Waldrop, CPA, speaking for Moquist Thorvilson Kaufmann Kennedy & Pieper LLC. described the benefits of collaboration this way. ”Cloud-based solutions have distinguished us from the competition. The ability to access a single copy of a client file in real-time with multiple users has definitely helped our firm’s productivity and efficiency. Our cloud-based solution also enables us to add value to each client because they can start out small and add users and features over time as their business changes, without paying the large initial fees of other enterprise-level solutions.”

Tell us about your ideas for using collaboration to streamline and increase client services by using the comment tool. And please share this blogpost via Facebook (Like button), Twitter Retweet, bookmarking or emailing to a colleague.

In a recent article  titled, “Another reason not to cloud wash – real cloud services are maturing fast” Forrester Research Vice President and Principal Analyst James Staten wrote: “Since cloud became a household word, vendors and enterprises alike have jumped to declare victory on cloud with services and infrastructure implementations that really don’t deliver cloud value but have the same foundation – something we call ‘cloudwashing.’ This is a dangerous gambit as you claim legitimacy but don’t activate the same economics, deliver the autonomy that cloud services offer to your internal users and aren’t standardized or automated enough to deliver transformative agility. In other words you claim cloud but are achieving only incrementally better value.”

Staten is the author, with Galen Schreck,of Forrester’s 2011 Q4 Tech Radar on Cloud Computing, Both authors focus on best-practice uses of cloud computing for enterprise infrastructure and operations.  The Tech Radar was put in place to “help organizations avoid falling victim to marketing claims that all things web and Internet are now cloud,” they say. Forrester defines cloud computing as “a standardized IT capability (services, software, or infrastructure) delivered via Internet standard technologies in a pay-per-use, self-service way.”

The Tech Radar is a great resource for business decision makers because it analyzes cloud services for maturity, expected ROI, and relevance across all enterprise types. “We look at the maturity of a technology and the presence of best practices around its use that validate the model and provide clear cost differences from traditional alternatives,”

Cloud washing was on many minds at the CloudBeat conference held at the end of November. When an interviewer asked Randy Bias, CTO and co-founder of Cloudscaling, for a comment on it he said, that cloud computing is a disruptive technology. “The classic definition of a disruption is that some new kind of technology comes along and it displaces a lot of value chains within the existing technology and the people that are selling [the existing technology] can’t really pivot. … With cloud washing, which I would say is happening with a majority of the incumbent enterprise vendors and to some degree with some of the smaller players, there is really an attempt to take some of the older technologies and make those look like cloud computing and put the current label on them, but they are really not moving the ball forward.”

These cautions apply not only to Infrastructure as a Service but equally to Software as a Service. Dan Druker just deconstructed Sage’s claim that MAS 90 and MAS 200 are cloud applications–a claim even the Sage forum is debating.  Offering a description of the underlying old-technology base, Druker concludes, “So let’s be clear.  The proper term of art for this delivery model is either ASP or Hosted – perhaps you could stretch into on-line. Calling it SaaS and Cloud misrepresent what Sage are really offering and just confuses the market. And it will provide customers just a fraction of the benefits of modern, multi-tenant cloud-native systems.”

I do a lot of speaking engagements on cloud computing, both for prospective clients and for groups like the Illinois Society of CPAs. When questions come up about what cloud accounting applications are and are not, I answer as I do in SaaS or Not? Then to clear the FUD factors away, I summarize by showing this slide, showing how cloud washing compares both to true cloud applications and the on-premises technology that true cloud computing disrupts.

It’s my way of saying to cloud washers, “Hey you, get off of my cloud.”

In this situation, a sound decision-making process can save you from spinning your wheels. Leave the details of how the possible replacements work to the VAR or dealer you are working with, for the time being. “Decision-making is one of the defining characteristics of leadership. It’s core to the job description. Making decisions is what managers and leaders are paid to do,” as the Decision Quality trainers say.

The key decision factors that business decision makers use to evaluate an accounting system purchase (whether it is on-premise software or a SaaS solution) are the 4 F’s: Functionality, Fit, Financials, and Future.

Functionality corresponds to your major business requirements, and defining those requirements is the first step in your process. Fit refers to usability; the needs and skills of your users are the standard of relevance here. Financials refer to the cost/benefit analyses you undertake to determine Total Cost of Ownership (TCO) and Return on Investment (ROI). The processes involved are well-defined, and I can recommend some good tools to make the job easier. The final factor is your view of the Future: who will implement your choice, what support will they provide after implementation, and what can be done to ensure that your new system grows with you for as long as possible.

The silver lining in your situation is that by the time you start to look for a replacement, you really know what’s missing from your current system. The tendency is to go straight out shopping for the missing parts. But problem analysis is different from decision-making. May I suggest that you first stand back and ask what value a new system can provide overall? The value question spurs you to think about your decision as a whole. It operates on many levels: visibility into the business, which is essential both to manage and control the business; potential revenue gains (direct and indirect); and potential cost savings (both direct and indirect).

For example, let’s take a small manufacturing company that has been running on a home-grown accounting system. It does not have a purchase order (PO) system, and that is the pain point that leads them to look for a replacement. Lacking a PO system, they do manual purchase order entry which causes errors; they carry excess inventory to cover the manual process; their salespeople are prevented from entering orders remotely, etc.

Clearly, one of their main functional requirements is for a system that integrates purchase order processing into their accounting and banking, sales, supply chain, warehousing and customer service functions. Identifying this as a requirement will enable them to improve business visibility as well as identify certain direct and indirect revenue gains and cost-savings. But what else do they need?

As the process of requirements definition goes on, more detailed requirements emerge: the company needs customer-specific pricing and tier pricing; customer item numbers; commissions tracking, etc. These items form the basis for a checklist of functions that can be compared to the functionality offered by the new solutions under consideration. The next step is to rank and rate each of the functionality criteria so that you know what’s a must-have and what’s a nice-to-have. That in turn helps the implementer to determine how much your must-have list will cost and your management team to calculate the TCO.

We will come back to tools and methods for figuring TCO. Probably many times. TCO decisions are somewhat different for on-premises and SaaS solutions.

Meanwhile, please leave me feedback using the comment tool. I would love to know what you think and what information you would like to see. And please share this blogpost via Facebook (Like button), Twitter Retweet, bookmarking or emailing to a colleague.

Turning to another 2010 survey, this one by Forrester Research, the top three concerns about adopting SaaS offerings were security (40%), integration challenges with other applications (32%), and total cost of ownership (30%). Security is a big one. Doctors take the Hippocratic oath that starts, “First, do no harm.” If finance and IT professionals took an oath, it would probably start, “First, keep the data out of harm’s way.” After over 30 years in the accounting field and on the application implementation and support side, I understand your caution. But I want to ask you two questions: How much security can you afford to deploy? Where do your greatest security risks come from?

First, how much security can you afford to deploy? Unlike the Fortune 100, most midmarket and smaller enterprises cannot afford to staff up with three shifts of network security admins, monitoring the network perimeter 24/7/365 to detect and prevent attempted penetrations, for example.  And that is only one component of a complete security system. Other components include encryption and hardened systems, disaster recovery hot sites, automated upgrades, and audited security practices.

Cloud vendors are likely to have such Fortune 100 class data centers, and you should certainly ask them to prove it. One of the great services that the AICPA provides with its CPA2Biz program is that it rigorously evaluates the security operations of the cloud application vendors it accepts as Trusted Business Solutions providers.

Second, where do your greatest risks to data security come from? The Microsoft Security Intelligence Report revisits this question twice a year. If you want to test your tolerance for a DIY approach to security, this is a great place to start. I prefer to quote from Dan Druker’s summary:

“According to Microsoft, the largest single category of security incidents in 2010 – just like they are in every other year – involve stolen equipment, with 30.6 percent of the total. Negligence and improper disposal of business records make up the bulk of the rest. This matches my real world experience – think how many times every day that someone has a laptop, hard drive, USB stick or CD ROM stolen with valuable, proprietary or confidential information stored on it.

So what does this mean for cloud computing ?

It shows how cloud computing is inherently more secure than on-premises software.

In the cloud computing world, information is never stored on your servers or laptops or hard drives or CD ROMs where it can eventually be misplaced or stolen,” Druker concludes. Instead data is stored in a Fortune 100 class data center, and on the way to and from your web browser, your data is encrypted.

Tell us about your security issues and concerns using the comment tool. And please share this blogpost via Facebook (Like button), Twitter Retweet, bookmarking or emailing to a colleague.

Accounting Today

Seth also mentioned that Accounting Today also blogs. Curious to see what they do, I browsed their Debits & Credits blog, where almost immediately I found news you will like.  Posting on November 4, 2011, Michael Cohn wrote:

“[Financial information provider Sageworks] analyzed the financial statements of thousands of privately held companies to discover which ones generated the most profit over the last 12 months. The company noted that private companies account for up to 70 percent of gross domestic profit and approximately 80 percent of new jobs.

The company found that on a pre-tax business, the most profitable industries were primarily service-based businesses. Those classified as providing “accounting, tax preparation, bookkeeping and payroll services” ranked fourth on the list, with an average pre-tax profit margin of 13.61 percent.”

When you consider how much you can increase profitability with a cloud accounting solution, that’s really exciting news.  Now if you’ll excuse me, I have to go look at another Debits & Credits post, “Accountants Move Toward Value Pricing Model.”