The main reason the IT department is considered a key strategic department inside of an organization is that it solves many bottlenecks inside of the organization and most times other organizations.
However, it is important to notice that the IT department, by itself, has many different bottlenecks that must be resolved or transferred in order to keep the organization healthy. These bottlenecks could come in different flavors.
It could be due to power outage, hardware maintenance, too much computation to handle with few resources or even too little computation with so many resources available.
Before trying to understand the budget and cost associate with cloud migration, is necessary to have a clear picture of these bottlenecks, as well as, other factors such as time of the year, when they could be perceived, or possible natural disasters among others.
These factors will depend on the organization, but some good examples are the holiday season an how they can affect e-commerce or elections and how they can affect government entities.
With that in mind, it becomes easier to evaluate the impacts to be caused in the IT budget.
Cloud computing can shift capital and operational expenses from the on-premise to partial or complete operational expense only. Knowing, what is the total cost, the on-premise model, will help to see the impact. Especially, in a long time period!
Two main aspects should be analyzed.
1. Capital expenses (CAPEX)
2. Operational expenses (OPEX)
CAPEX takes into consideration things like hardware. But even then, it can be divided into tangible and intangible assets.
- Datacenter facilities and components.
- Air conditioning
- Power generators
- Power supplies (For high availability)
- HVAC ductworks
- Fire suppression systems
- Tools for maintenance
- Office furniture
- Servers, storage & network hardware.
- Monitoring cameras or other room security devices and hardware
- Load Balancers
- Rackmount servers
- Blade servers
- Computing appliances
- Storage Area Network
- Network-attached storage
- Direct attached storage
- Storage network equipment
- Tape libraries and drives
- Backup systems
- Different types of software.
- Operating systems
These assets are, generally, easy to calculate at first, if, a proper list is defined, including even smaller things like batteries for small hardware utilities.
The lifecycle of hardware should also be determined. Hardware will eventually be replaced due to being old, or newer technology or malfunction, and many other reasons.
The rate of replacement, if known, should also be part of CAPEX.
Yet, a bigger challenge seems to be the need for resources in intermittent times of the year. There are times of the year where the demand is higher than other times.
The problem with that is that more investment must be made for that time of the year to attend the demand, however, the time without demand will have that investment idle.
This is very inefficient and it can be expensive!
CAPEX, can be partially and even 100% eliminated from the IT’s budget when migrating to the cloud. It will depend on the type of service deliver model chosen (SaaS, PaaS, IaaS) as well as the deployment model chosen (Private cloud, Public cloud, Hybrid cloud, community cloud).
OPEX plays a huge role in the IT budget. In association with CAPEX, it will form the Total Cost of Ownership or (TCO).
In the OPEX list we can find:
- 3. Inventory cost
- 4. Maintenance & support
- 5. Payroll
- 6. Marketing
- 7. Research & development
Operational costs could, also, be partial or and even fully removed, even though, the staff is still necessary to manage or develop soft elements in the cloud (SaaS).
Once the IT department determines it’s TCO and has an optimal cost to acquire cloud, it can now see what is net loss or gain and based on that, take the option on how to better utilize, hopefully, the net gain and make the department even better.
If the brains of the organization, in this case, the IT department, can work well, the whole organization will also operate at its optimal.
Net Gain’s option
- Department’s savings could be used in a department that is struggling.
- Net gains can be used to increase salaries or finance activities for the staff in the department, increasing productivity.
- The department can invest in hiring more people to level up productivity as well, generating more profitability for the business.
- More research for new projects could also be done, which also could help with profitability after a period.
- The department could invest in new technologies, inside or outside of the cloud to improve certain aspects of the department or even for the whole organization.
Among many other options.
Cloud can “solve”, in this case, I mean transfer, the bottlenecks inside the IT department bringing more time to focus on the business itself.
In other words, the impact, if TCO is done correctly and with an optimal cloud calculation cost, can dramatically change the budget for the IT organization overtime as well as increase productivity. Consequently, improving the whole organization.