How the Cloud Is Changing the Environment
It’s amazing to see how the cloud has completely changed not only how we work, but our entire culture. Much of what we do personally and professionally is conducted and stored in the cloud. Technology investments used to be reliably categorized as capital expenditures (CapEx) to take advantage of amortization and depreciation over an extended period of time. Increasingly, however, CFOs are transitioning IT spending to operating expenses (OpEx), thanks primarily to cloud capabilities.
How Does IT Fit as an OpEx?
While certain hard costs still require large, upfront investments planned for in the capital budget, much of today’s technology can be purchased as a subscription and managed in the cloud. Not only does this free up real estate, capital and specialized staffing requirements, of particular interest to smaller/startup organizations, it enables companies to afford the latest technology without undergoing a lengthy procurement process. Technology as an operating expense also allows companies to scale with demand. The budgeting process is typically completed well ahead of actual procurement. Without a crystal ball, however, these predictions of future capacity needs are often mere guesses. The pace of technology advancements is one of the more convincing reasons why CFOs are shifting from a reliance on capital expenditures to operational spending. Why get stuck with aging technology when you can upgrade to the latest technology as part of your subscription rate?
The Bigger Picture
Dave Michels, contributing editor and analyst at TalkingPointz suggests the CapEx versus OpEx argument isn’t all about dollars or even the technology itself. “The shift to the cloud is actually the buyer shifting the responsibility for actual results to the provider,” he says.
“It’s a combination of pay-as-you-go, the reduction or elimination of capital equipment, and shorter-term commitments. Many [cloud] providers will fail, and when they do, the customer will exercise its newfound agility by swiftly moving to a new provider.” – Dave Michels, Contributing Editor and Analyst at TalkingPointz
CFOs and CTOs still have to come to agreement on how technology is procured and cloud-based companies will need to be on their toes to provide the technology and service customers will come to demand. While the cloud concept is relatively new, its influence on the balance sheet is already being felt.
Read the full article “Why Are More CFOs Shifting IT Investment from CapEx to OpEx.”