As the adoption of cloud services by enterprises gains momentum, chief financial officers may still have concerns about this shift. While the transition from classic IT models to cloud-based ones represents a big change in the way IT budgets are managed, the increased financial flexibility will deliver big benefits to CFOs.
Traditional purchases for hardware and software often involved large Capex expenditures upfront, plus costly subscriptions for maintenance and upgrades. In 2021, global IT expenses rose to $277 billion euros. Considering companies spend between 2% to 4% of their turnover on IT budgets with a record 9% for banking and finance firms, these could squeeze a company’s cash position leaving a little margin to change direction later as markets or circumstances evolved. In addition, as a company grows, or as IT ages, this creates a lot of unpredictability when it comes to budgeting and expenditures. As an average 34% of IT’s budgets are spent on maintaining infrastructures, transitioning to the cloud could help companies save up to 15% of their spendings (according to Computer Economics).
Cloud-based services eliminate the need to make long-term commitments to one vendor or one version of the technology. This reduces uncertainty about the IT infrastructure variable costs. Storage, servers, and software rest mostly with the cloud provider who can then deliver the latest technology through centralized upgrades. This lowers on-premise support costs while also ensuring a company is using the latest version of services and software.
From the perspective of the CFO, the change means that the accounting for IT costs moves from the Capex budget to the Opex budget. The result is greater visibility into costs. This allows companies to move faster when introducing new services.
The CFO is able to measure and adjust spending based on a company’s needs without having to make risky bets on large IT projects. The pricing to scale with a cloud vendor is more transparent and allows decisions about costs versus benefits to be made rapidly. When unpredictable events happen, such as a surge in customers, a cloud-based system can deploy more capacity to handle the demand.
As a matter of fact, visibility on data related to expenditures is a crucial factor for success as a relative vagueness about it entails a major risk when handling contracts. The ability to get more real-time data across the business means the CFO can detect any potential issues early on and quickly learn what is working and what is not in order to make adjustments.
The cloud also creates greater flexibility around workforce decisions, another important aspect in terms of controlling the budget. Adding more staff could mean having to purchase more networking equipment and software, particularly to support remote workers. With the cloud, such access can be provisioned quickly and for only incremental cost. In addition, the cloud allows employees to access the company’s systems from more locations and devices. That, in turn, allows for more collaboration and increased productivity.
This type of flexibility can be liberating for CFOs. As cloud services make financial planning and budgeting more precise, CFOs will also have more freedom to drive a company’s digital transformation with confidence.