Why do CFOs switch to an operational cost model in IT
What to spend money on so that the company can grow? This issue prevents many CFOs from sleeping. Each department pulls a blanket over itself, and you still need to consider many factors that affect the cost plan. And these factors often change, forcing to revise the budget and urgently seek funds for some new direction.
Traditionally, when investing in IT CFOs, capital expenditures are preferred over operating expenses. It seems easier, because it will be possible to take into account the benefits of long-term depreciation from large one-time expenses for the purchase of equipment. However, there are more and more arguments in favor of the operating cost model, which is often more convenient than the capital model.
Why it happens
There are many areas that require large investments and should be part of the approved budget. These costs need to be planned in advance, but forecasting future needs is incredibly difficult and risky. Yes, the actual costs of approved projects can be predicted. But far from always what was planned coincides with what business really needs in this period of time. Technology is advancing rapidly, and IT infrastructure needs are becoming less predictable.
Market conditions change so quickly that business owners and financial departments often resort to short planning periods. Management and planning systems use Scrum with its sprints, and IT infrastructure is transferred to the clouds. It was inconvenient and uncompetitive to plan large expenses for updating equipment, to find funds for launching a project.
What previously required the whole building, tons of “iron”, intelligent specialists for maintenance and a lot of time for control and interaction, now fits on the control panel open in an ordinary laptop. And it requires relatively small payments. The business has many options for development, because they can afford the latest and greatest technology without tearing out a large amount of money from the budget to pay for it. This allows you to reduce costs and channel the savings to other projects, which also contribute to the growth of company revenues.
What is the inconvenience of the capital spending model?
- Large amounts of cash are required one-time, with each change / update of the IT park;
- Unpredictable problems with starting and setting up processes;
- Huge budgets need to be agreed upon and approved;
- The company is forced to use the technologies for which it has already been paid.
What does the operating model offer?
The system of monthly payments only for the resources and services used is a model of operating costs. It makes the business more predictable, measurable and manageable. This brings stability and calms the shaky nervous system of the CFO.
For IT developers, cloud solutions based on the operating model are tantamount to quick testing and launching projects, which is especially important in an aggressive competitive environment. This model allows you to:
- Pay for the actually consumed resources that are required here and now;
- Operate with short planning periods corresponding to agile Scrum models;
- Allow released funds for many other important investments for the company instead of one large-scale one - for the purchase of equipment and hiring specialists;
- Significantly increase the speed of operations in the moment;
- Get a quick turnaround.
The benefits of moving a business to the clouds are immediately felt. You will no longer have to guess the need for resources months before the launch of a new project, look for space for new servers, publish dozens of vacancies and interact with candidates.
Some skeptics argue that switching to an operating model may make cash flows less predictable, as costs are associated with actual use. For example, site traffic has grown like an avalanche because your YouTube video has become viral. You did not predict a sudden increase in visitors, and spending this month will increase sharply. But then you can increase the amount of resources consumed so that everyone can get to the site and get acquainted with the company's offer.
And what would happen with the capital model? How likely is it that the site would collapse under a sudden jump in traffic, since you did not lay additional server capacity when planning the budget for the year?
Why clouds help businesses move forward
Rapid changes in the technical field of any business immediately imply an operational model. Companies do not spend money on unused capacity of infrastructure, working time of extra employees. Clouds save live money.
- No investment in rapidly aging hardware;
- There is no headache with the budget, everything is predictable and manageable;
- Infrastructure updates - due to the cloud provider;
- No overpayments, as hourly billing is often used;
- There are no electricity bills necessary for the server to function properly.
If a business needs growth, Cloud4Y recommends considering moving your infrastructure or individual tasks to the cloud. You can forget about conflicts of server hardware, expansion of racks, search and maintenance of qualified technical personnel for infrastructure maintenance, etc. A simple monthly payment allows you to invest more in other areas that help businesses grow.