One of the major factors in deciding between cloud and dedicated infrastructure is cost. While hard costs are an obvious contributing factor, soft costs are more subtle and can be difficult to assign a number.
So, how do you justify costs to your CFO?
Human Capital Savings
Cloud computing shifts the IT burden from an organization to a cloud service provider. In doing so, it significantly reduces human capital expenses. For example, traditional dedicated environments require every component of an infrastructure to be manually configured and physically available, while in cloud environments, components are configured in a centralized location through an administrative interface. Cloud components are treated as objects, and any number of the same object may be applied to the infrastructure (as long as it is available in the resource pool). Load balancers, switches, routers, storage, virtual machines, firewalls, and data storage objects are, in many cases, “drag and drop” or “plan and provision.”
Human resource savings differ by organization, while actual time savings in provisioning and managing cloud resources vs. comparable dedicated resources can reach 90%.
Cloud-based infrastructures offer self-service resource provisioning and management portals for workgroups that have constantly changing demands. This same functionality can be achieved in a dedicated environment. But it lacks the dynamic nature of a cloud control panel because a dedicated resource control panel can’t adapt to newly deployed resources in real-time.
Accounting is handled differently in dedicated and cloud infrastructure deployment models. Some organizations prefer to capitalize expenses, while others prefer to shift expenses to an operational paradigm.
Dedicated CapEx vs. OpEx
The Total Cost of Ownership (TCO) in a dedicated environment can be significantly higher than a cloud architecture. In dedicated environments, traditional capital expenditures (CapEx) are met with varying operating expenses (OpEx). A challenge that is often overlooked in the OpEx model is the need to maintain components that are defective. In the OpEx model, these expenses are only attributed to an individual application or project—applications or projects for which these financial requirements are not consistently assigned.
Cloud CapEx vs. OpEx
In a cloud environment, CapEx is initially realized and the operational expenditure is distributed across the entire infrastructure. As resource utilization increases, infrastructure expansion is classified as an operational expenditure for the entire installation, as opposed to a capitalization expenditure for a discrete application or project. Savings are realized immediately, lowering overall TCO in the cloud.
There is much more to discuss regarding CapEx vs. OpEx, which we’ll cover in future blog posts. You can also learn more in our white paper on Dedicated vs. Cloud Costs.