What to Spend Money On So the Company Can Grow? This question keeps many financial directors awake at night. Every department is vying for resources, and various factors that impact the expenditure plan must be considered. These factors often change, necessitating a budget review and urgent efforts to find funding for a new direction.
Traditionally, when investing in IT, CFOs prefer capital expenditures over operational ones. This seems simpler because it allows for taking into account the benefits of long-term depreciation from large one-time costs for equipment purchases. However, more and more arguments are emerging in favor of an operational expense model, which often proves to be more convenient than the capital model.
Why Is This Happening?
There are many areas that require substantial investments and must be part of an approved budget. These expenses need to be planned in advance, but predicting future needs is incredibly challenging and risky. Yes, actual expenses on approved projects can be forecasted. However, what was planned does not always align with what the business actually needs during that time. Technologies are evolving rapidly, and the demand for IT infrastructure is becoming increasingly unpredictable.
Market conditions are changing so quickly that business owners and financial departments are increasingly resorting to shorter planning cycles. Scrum with its sprints is used in management and planning systems, and IT infrastructure is being moved to the cloud. Planning large expenses for equipment upgrades and finding funds to launch projects has become cumbersome and uncompetitive.
What once required a whole building, tons of 'hardware', skilled specialists for maintenance, and a lot of time for monitoring and interaction, now fits in control panel, opened on a regular laptop. It requires comparatively small payments. Businesses have many options for growth since they can afford the latest and most advanced technologies without draining a large sum from their budget to pay for them. This helps reduce costs and direct saved funds into other projects that also contribute to the company's revenue growth.
What is the inconvenience of the capital expenditure model?
- Large amounts of cash are required upfront, with each change/update to the IT infrastructure;
- Unpredictable problems with launching and adjusting processes;
- It is necessary to negotiate and approve huge budgets;
- The company is forced to use technologies that have already been paid for.
What does the operational model offer?
A system of monthly payments only for the resources and services used — this is the operational expenditure model. It makes the business more predictable, measurable, and manageable. This brings stability and calms the frayed nerves of the CFO.
For IT developers, cloud solutions based on the operational model are equivalent to rapid testing and launching of projects, which is particularly relevant in an aggressive competitive environment. This model allows:
- To pay for the resources actually consumed, which are needed here and now;
- To operate with short planning horizons, corresponding to agile Scrum models;
- To allocate freed-up funds to many other important investments for the company instead of one large-scale investment — for purchasing equipment and hiring specialists;
- To significantly increase the speed of operations in the moment;
- To achieve a rapid turnover.
The benefits of transitioning businesses to the cloud are felt immediately. There will no longer be a need to guess resource needs months before the launch of a new project, search for space for new servers, publish dozens of job vacancies, and interact with candidates.
Some skeptics argue that switching to an operational model can make cash flows less predictable since costs are tied to actual usage. For instance, website traffic can surge dramatically if your YouTube video goes viral. You didn't anticipate the sudden influx of visitors, resulting in a sharp increase in expenses this month. However, you can scale up resource consumption to ensure that all interested visitors can access your site and learn about the company's offerings.
What would happen under a capital model? How likely is it that the site would crash under a sudden spike in traffic, as you didn't allocate additional server capacity while planning the annual budget?
Why clouds help businesses move forward
Rapid changes in the technology sector of any business inherently suggest an operational model. Companies don't spend money on unused infrastructure capacity or the work hours of extra employees. Clouds preserve 'live' cash.
- No investments in quickly outdated 'hardware';
- No headaches with the budget, everything is predictable and manageable;
- Infrastructure upgrades are handled by the cloud provider;
- No overpayments, as often, usage is billed hourly;
- No bills for electricity needed for the proper functioning of the server room.
If a business needs growth, the company recommends considering moving infrastructure or specific tasks to the cloud. You can forget about server 'hardware' conflicts, expanding racks, and hiring qualified technical personnel to maintain the infrastructure, etc. A simple monthly payment allows for greater investment in other areas that help the business grow.
Source: habr.com
