Dollars and Sense: Cloud Benefits for the CFO
How do you present cloud computing - a somewhat nebulous concept - to the financial leadership at your company in order to prove its benefits over the long term? At organizations that have traditionally focused on in-house hardware provisioning, a subscription service can be a hard sell. Opposing arguments range from, "What are we really getting for our money?" to "You're going to spend how much every month, instead of just every couple years?!"
We decided to pick the brain of our VP of Finance, Jason Graf, to see what a financial mind thought about the cloud and how to explain cloud benefits to CFOs and other top financial executives.
Did you know anything about the cloud before starting with Green House Data?
I only understood the cloud as a nebulous concept where every- and anything was out on the internet. I wasn’t sure where the cloud was; I just knew it was out there, somewhere.
How do you understand cloud computing today?
There is far more definition around that term today. Green House Data is part of the cloud, providing the servers needed to store, host, and process data for various customers and applications.
Cloud providers offer businesses an easy way to get the infrastructure they need to support profitable operations, usually through a subscription for the servers, applications, and/or supporting infrastructure.
What are some ways cloud can reduce CapEx?
When using cloud resources, capital expenses can be saved for revenue-generating operations rather than spent on computing equipment every few years. There are no major investments up front for equipment, staff, or resources – capex can be saved for revenue generation – operational costs are more manageable, especially on the fly)
In general, operational expenses are more manageable over time, especially when finance officers are trying to juggle their budgets on the fly. Technology is changing so rapidly. A cloud platform allows a business the flexibility needed to change.
However, that doesn't mean cloud is ideal for every application. A cloud concept should be a proven platform that requires little effort to implement. The time element can be a hidden cost, as it takes time to implement, test the system, and train individuals. Internally managed systems take longer to implement. A managed solution could be an option here, but in general you just need to be smart about what you're buying.
In what ways are operational expenses easier to deal with than capital spending?
OpEx allows you to reserve cash for the core business. In the IT realm, your budget can be spent to hire, train, and manage in-house staff or focus on other business goals, like supporting your applications and end users. That makes the entire company more productive. It also helps cut down on that implementation obstacle.
Operational expenses tend to be known, smaller amounts. Many times these charges are recurring. Capital spending amounts are larger, one time cash outlays that can be burdensome to a company. No CFO likes to have to hunt down thousands of dollars in cash for major purchases that crop up unexpectedly, like when IT equipment gets fried.
How can outsourcing improve service levels?
This comes down to in-house expertise and training vs. using subject matter experts. For example, for security and compliance, it’s often expensive to keep in-house expertise. There are so many areas that require an expert that outsourcing those duties can reduce the overall burden and cost to the firm.
Outside of specific compliance or security measures, downtime itself is expensive. As I mentioned, your CFO doesn't want to be hit with a large unexpected expense. We'd much rather have a anticipated charges every month. Your cloud provider has to give you the infrastructure you're paying for, so if their rack goes down, they replace it and you keep chugging. If you have an in-house storage array that dies, the applications relying on that array are going to be AWOL until you can get it replaced.
If you were trying to sell a cloud initiative to a CFO, what would you say?
CFOs are interested in fully utilizing a firm’s limited resources, with cash being one of those resources. The cloud allows a firm to leverage those resources and expand the systems and applications the firm can utilize for the IT operation in question. I would also mention the benefits of OpEx vs. CapEx. You know the computing resources that you will need for the duration of this project, and the cloud can provide them. If those needs change, you can increase or decrease the monthly cost as needed. If you don't require a batch of servers anymore, you can power them down instead of having physical equipment that you spent valuable budget on sitting somewhere, gathering dust.
Cloud platforms can provide flexibility to staff that is traveling or working remotely. The vast majority of internally hosted systems can prove challenging to access remotely – a cloud platform can enhance the productivity and effectiveness of a firm’s staff if the staff is spread across multiple geographies or travels extensively.
How would someone decide on the ROI of the cloud vs. purchasing and administrating their own IT equipment?
CFOs can and should already know the cost of their company’s IT department and associated systems. They must be the ones to ultimately evaluate the cost of competing methods of infrastructure delivery. Where is the inflection point where cloud is cheaper?
In addition to the monetary cost of managing systems internally, the people and time component is another important aspect to consider. Businesses have limited resources, people included. Does it make sense to have an IT group focused on the internal business systems or can the group be leveraged in a different manner to enhance revenue growth, profitability, and the productivity of other departments?