Why CFOs are switching to an operating cost model in IT

What to spend money on so that the company could develop? This question prevents many financial directors from sleeping. Each department pulls a blanket over itself, and there are still a lot of factors to be taken into account that influence the spending 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 prefer capital expenditures rather than operational ones. It seems simpler, because it will be possible to take into account the benefits of long-term depreciation from the large one-time expenses for the purchase of equipment. However, there are more and more new arguments in favor of the operating model of spending, which is often more convenient than the capital model.
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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 not always what was planned coincides with what is really required by the business during this period of time. Technologies are rapidly developing, and the requirements for IT infrastructure are becoming less and less predictable.

Market conditions change so rapidly that business owners and financial departments often resort to short planning periods. In management and planning systems, Scrum is used with its sprints, and the IT infrastructure is transferred to the clouds. It was inconvenient and noncompetitive to plan large expenses for upgrading equipment, to seek funds for launching a project.

What used to require an entire building, tons of hardware, intelligent service specialists, and a lot of time to monitor and interact, now fits on the control panel, open in a regular laptop. And requires relatively small payments. Business has many options for development, since they can afford the newest and best technologies, without pulling out a large amount of money from the budget to pay for them. This allows you to reduce costs and channel the savings to other projects that also contribute to the growth of the company's revenues.

What is the inconvenience of the capital cost 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;
• It is necessary to coordinate and approve huge budgets;
• The company is forced to use those technologies for which it has already been paid.

What does the operating model offer?

The system of monthly payments only for the used resources and services is a model of operating costs. It makes the business more predictable, measurable and manageable. It brings stability and soothes the loosened nervous system of the CFO.

For IT developers, cloud solutions based on the operating model are equivalent to quick testing and launching projects, which is especially important in an aggressive competitive environment. This model allows you to:

• Pay for actually consumed resources that are required here and now;
• To operate with short scheduling periods corresponding to agile Scrum models;
• To release the released funds to many other important investments for the company instead of a single large-scale one - for the purchase of equipment and the hiring of specialists;
• Significantly increase the speed of operations in the moment;
• Get a quick turnaround.

The benefits of moving businesses to the cloud are immediately noticeable. You 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 operational model can make cash flows less predictable, since 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 expenses will increase dramatically this month. But on the other hand, you can increase the amount of resources consumed so that everyone can get on the site and get acquainted with the company's offer.

And what would have happened with the capital model? How likely is it that the site would collapse under a sudden increase in attendance, since you didn’t add additional server capacity when planning a budget for the year?

Why Clouds Help Businesses Move Forward

Rapid changes in the technical sphere of any business immediately imply an operational model. Companies do not spend money on unused capacity of the infrastructure, working time extra employees. Clouds save live money.

• No investment in a rapidly aging “iron”;
• There is no headache with the budget, everything is predictable and manageable;
• Infrastructure updates - at the expense of the cloud provider;
• There are no overpayments, as, often, hourly billing is used;
• There are no electricity bills necessary for the normal functioning of the server room.

If business needs growth, Cloud4Y recommends that you consider moving your infrastructure or specific tasks to the cloud. You can forget about server server hardware conflicts, expanding racks, searching and maintaining qualified technical staff to maintain infrastructure, etc. A simple monthly payment allows you to invest more in other areas to help your business grow.