Cloud, CAPEX Vs OPEX and Other Financial Benefits

The cloud is the buzz word revolutionizing software and IT infrastructure world over. Companies globally are leveraging the cutting edge benefit of cloud to get what works best for their IT network, software & Apps. Cloud instance cost are computed as OPEX and purchase of a unit of server as CAPEX. Let me try and analyze the cost benefit of cloud based technology beyond CAPEX Vs OPEX and look at other financial cost benefits.

  • Cost benefit calculation : A piece of equipment purchased, can serve it intent purpose for up to 36 months before it is made obsolete. If you consider only this for an ROI calculation, the cost of running an instance of Azure/Amazon 24 X7 is much expensive than purchasing a single unit of server with similar configuration. For organizations heavily depended on IT, the calculation is flawed. The indirect (network and storage infrastructure and IT operations to manage the general infrastructure) and direct cost (Power, floor space, etc of running a server is completely ignored in this calculation. When all this cost is added, the overall cost of renting cloud space works cheaper than purchasing a server. A cloud instance purchase considered as OPEX is much cheaper than a CAPEX on a server purchase.
  • Upsize & Downsize on the go: A variable OPEX is no financial prudent way of running operations. This is true if the nature of your operations is “set and forget”. The “set and forget” model holds rarely true for organization with IT as the core of it’s business. Cloud instance offers scalability and allows for ramp up and ramp down based on seasonal spikes and usage patterns. This flexibly allows for payment to be made for what you use. You will no longer be bogged down by excess hardware or the lack of it. The implied benefit of this is that you pay lower OPEX for maintaining the cloud during a lean seasons. When a user is finished with the resources, it is return back to the provider. The utilization responsibility rest with the provider and he has to figure out how to make sufficient usage of the resources.
  • Lesser Financial Liability : The only thing that frees a user from making significant long term investment is the ability to start off small. Cloud solutions being scalable can be started out as small and can be scaled up hence, financially valuable. The short term premium paid for cloud services is less expensive than higher rate for a shorter period for a server purchase.
  • Automation Saves: In today’s world, organizations across the globe are realizing the benefit of automation. Tools and automation in cloud services offer facilities for resource termination and instantiation. Biggest advantage of automating is ability to optimize resource usage based on demand and usage. The load and usage pattern help the automation tools to determine how many instances or resources to be up and running at any given period of time. Advances made in these tool offer autonomous management of these process with limited or no manual intervention. An environment like this incurs smaller transaction cost making “down and off” more viable.

The above is a clear evidence of cost benefit of cloud instance over a conventional server. Financial benefits are one of the biggest reasons for the exponential cloud adoption rate among organizations in the recent past and will also drive future of cloud computing.

Leave a comment

Your email address will not be published. Required fields are marked *