Storage Buy-or-Lease decisions in cloud computing under price uncertainty

Cloud computing allows to lease computational resources on demand on the network instead of buying them. Storage is a major computational resource that may be leased under the cloud computing approach. An economical model is provided for the analysis of the Buy-or-Lease decision for storage in cloud computing. The model introduces a probabilistic approach to evaluate future prices and the replacement needs for disk arrays (in contrast to the current literature which considers deterministic prices and fixed replacement rates). The median Differential Net Present Value is proposed as the decision variable. A simulation analysis is conducted that shows that the cloud computing approach appears more profitable for medium-sized companies with longer investment plans. The risks associated to wrong decisions is evaluated through the Value-at-Risk tool.