By migrating from on-premises to cloud, companies can enjoy many intangible benefits in addition to reducing costs. When calculating “cloud ROI”, companies should consider multiple factors. Since cost reduction is just one of the motivations for changing to a cloud model. So, let’s start by enumerating some of the most common reasons to migrate to the cloud:
- Improving latency, redundancy, availability and security.
- Reducing costs.
- Improving business continuity and Disaster Recovery (DR) capabilities.
- Increasing agility and competitiveness.
As shown above, the list of reasons to move from on-premises to a cloud-based infrastructure goes far beyond money saving. Moving from a CAPEX to an OPEX approach in IT not only helps reduce costs but also offers more flexibility, improves productivity, accelerates the time to market and decreases provisioning time. Relying on specialized services as those we provide at Stackscale offers many advantages to companies.
Migration from on-premises to cloud: CAPEX vs OPEX
On the one hand, CAPEX or capital expenditure is the amount of money a company spends on purchasing or upgrading goods. The goods purchased by a company depreciate over time, as they remain in the company for several years. Capital expenses are considered an investment and cannot be deducted annually, because its lifespan is longer. CAPEX can be tangible — hardware and facilities — or intangible — software licenses and intellectual property. Purchasing a server is a simple example of capital expenses in IT.
On the other hand, OPEX or operational expenditure is the amount of money a company spends on services that are necessary to keep the business running (utilities, wages, etc.). Operating expenses can be deducted annually. The costs related to the maintenance of a server is a simple example of operating expenses in IT.
To compare both models, CAPEX and OPEX, and evaluate which model is best for a business, companies should start by forecasting the infrastructure’s total use over a period of time. For instance: How many hours will the application be running per month? How much bandwidth will it use? How much storage will it require?
For small businesses and startups, which usually have tighter budgets, capital investments can be a barrier for competitiveness. However, thanks to cloud solutions such as Stackscale’s, businesses of all sizes can take advantage of new technologies quickly. By opting for an OPEX model, companies are freed from having to make a large, upfront IT investment and long-term commitments.
Less CAPEX, more agility
By reducing CAPEX in IT equipment, companies can reduce both capital and operational expenses. Since, in addition to the large investment required for purchasing IT equipment, there are many operational costs associated with its management, maintenance, upgrade, repair and disposal. A cloud environment combined with managed services can significantly reduce operational costs.
An OPEX model also allows to allocate resources to tasks and investments which are more meaningful to the business and customers. Moreover, when evaluating whether to purchase IT equipment or pay for a cloud service monthly, companies should consider which of them allows them to create value faster. Since agility is essential in the digital and always changing economy.
Main benefits of changing from a CAPEX to an OPEX model in IT
A cloud or “as a Service” model provides many advantages to companies beyond cost-efficiency and scalability. Here are some of the most important ones:
- Pay as you go approach. Companies can invest their available capital in more revenue-generating solutions such as R&D, lead generation or product development.
- Outsourced management and maintenance. Technical teams can focus on tasks adding more value to the business and customers. This allows companies to increase competitiveness and enter new markets.
- Greater scalability and agility. Businesses can scale their infrastructure up and down whenever necessary. They can change their IT infrastructure faster in order to adapt to the evolving needs of the business; leveraging new opportunities.
- Increased availability, redundancy and security.
- Improved business continuity and disaster recovery. Cloud providers like Stackscale offer a higher level of redundancy and security, so companies can achieve the level of business continuity they need for their mission-critical systems, more cost-efficiently. Besides, most cloud providers provide businesses with disaster recovery solutions adapted to their DRP.
Keeping control of costs in the cloud
Costs management must be approached differently when moving off-premises. Fast provisioning in the cloud must be properly managed to keep control of costs over time. To make it easier for businesses to keep their cloud budget under control, at Stackscale we offer a transparent billing structure. Besides, as most of the workloads in businesses are predictable, Private Cloud environments usually provide more predictable costs and performance.
Furthermore, in terms of cost-efficiency, a close collaboration between technology and finance teams is also key to successfully manage costs and make the most of investments. The relationship between the CTO and the CFO is important to select the right technological solutions for the business, both for optimizing costs and boosting performance. Thinking about changing from an on-premises to a cloud model? Our cloud experts can help you find the right infrastructure for your company.