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How does cloud change IT budget planning?

Cloud services, such as SaaS, introduce a lot of change into an organization. But how exactly do they affect my IT budget and approval process?

How is cloud changing IT budgets and processes?

The cloud is causing a significant shift in the way organizations use computing. Traditionally, computing was capital-intensive and dependent upon on-premises technology and staff. When a business needed a service, such as Microsoft Exchange, it would budget capital for servers, software licenses and, if needed, infrastructure. The business would then wait weeks or months for the servers' delivery and installation. Then, the business would deploy, test and optimize the software. IT staff would assign user rights and make configuration changes. If any issues arose, they would go straight to IT. This model required extensive IT input and focused more on technology than services.

But cloud services, such as software as a service (SaaS), have turned this traditional computing model on its head. Third-party cloud service providers can now render many of the important services that businesses require. The provider sets up its own infrastructure, manages its own equipment and licenses, and delivers its services over the Internet. Typically, businesses purchase these services on a per-user or per-month basis. The provider is also responsible for resolving any service problems or disruptions.

Rather than regularly incurring a capital expense (CAPEX), businesses budget for cloud as a recurring operational expense (OPEX). Additionally, cloud frees businesses from performing their own maintenance or support.

Cloud also allows businesses to focus on services rather than just technology. As a result, department heads and other business leaders play a bigger role in service evaluation, testing, recommendation and negotiation. If a cloud service is better and cheaper than an on-premises service, the business can opt to take the service outside. When multiple service providers are available, the business can shop around to compare features and capabilities.

All of this is changing IT budget planning and practices. Justifying capital is no longer necessary. Each business unit or department can budget for monthly cloud service expenses as a line item. Input from business managers, who now pay for services, becomes more important. To ensure an organization's infrastructure can support cloud, a central technology group is still necessary. Therefore, IT will remain involved. However, business choices, not technical ones, drive service decisions.

Also, to help identify, negotiate and integrate cloud services with current IT infrastructure, organizations can turn to a cloud services brokerage.

Stephen J. Bigelow is the senior technology editor of the Data Center and Virtualization Media Group. He can be reached atsbigelow@techtarget.com.

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This was last published in March 2015

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The biggest challenge we've faced in budgeting for cloud services is to anticipate all the incremental servers that seem cheap individually, but add up.
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The move from CAPEX to OPEX does indeed demand a new approach to budgeting. While it is true that the move to cloud services has removed much of the need to justify capital expense, the move to OPEX has created another problem for us that we’re trying to address - how to aggressively adopt emerging cloud technologies while concurrently reducing the OPEX budget.
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