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THE SHIFT FROM CAPEX TO OPEX

By Jeremy Chaplin, Cloud Optimisation Consultant at KCOM

Organisations are flocking to the cloud, taking advantage of the speed at which new servers and infrastructures can be set up and scale with customer demands. However, as they leave their data centres and physical servers behind, businesses may be sacrificing financial control and accountability.

Jeremy Chaplin

When IT spending was focused on buying, repairing or upgrading physical machines and servers, it counted as capital expenditure (capex). The advent of the cloud and on-demand IT services, from computing power to storage, is changing this. Organisations are increasingly moving their data and applications away from the data centre and into the cloud. They favour the flexibility it gives them to scale dynamically with demand and offloads the risks associated with investing in their own infrastructure. 

As businesses now pay for the computing services they need when they need them, IT spending is turning into operational expenditure (opex). Yet this transition from a well-governed capex model to a fluid opex model of cloud spending can be challenging for an organisation. Cloud environments are often fragmented, and it is difficult for finance teams to maintain oversight at all times. If they are not careful, businesses can lose control and run up costs they cannot sustain. New thinking and tools are needed to manage the transition safely. 

A brave new world

Capex and opex are intrinsically different as spending models. The former is defined by upfront investment, well-defined processes and rigid approvals before any money is spent. Purchasing a new host of physical servers, for example, is a large one-off investment so it demands sign-off from finance and, often, other decision-makers in the business.

Opex, by contrast, is a different beast entirely. It typically consists of ongoing costs required for the day to day functioning of the business and there is often a less rigorous approach taken to its governance. Opex usually deals in smaller sums – hundreds or thousands of pounds rather than tens of thousands or millions – meaning IT teams are usually permitted to spend it as needed with limited or no authorisation or supervision. To illustrate, this could be the decision of an IT manager to purchase another cloud instance to manually scale an application to meet customer demand.

Increasingly, these applications and services are capable of autoscaling which brings its own challenges in terms of cost control and visibility.  In development environments it is often the developer rather than the IT manager who decides what infrastructure to provision. These decisions are usually based on performance or other technical concerns, often with little or no concern for the cost.    

If such a fluid environment is not managed properly, mistakes can be made and the impact on the business may be severe. For example, that same IT manager or developer may forget to discontinue the instance when it is no longer required, meaning the business continues paying for services it doesn’t need. Under a poorly-managed opex model, a single employee has the potential to stand up infrastructure that costs the company hundreds or thousands of pounds a month without any oversight or controls. The longer this persists, the more chance there is for mistakes to be made and further costs to build.

If organisations don’t evolve their finance function to match their changing cloud environment, they may soon find themselves caught in a financial black hole, created by cloud costs that appear to grow without cause. If they don’t recognise the need for a different kind of approvals process, finance teams risk constantly playing catch-up, finding themselves investigating and reacting to the decisions of IT and tech teams, rather than collaborating to help make them.

The elasticity of the cloud allows businesses to scale like never before, but this flexibility has its challenges. While businesses are moving to the cloud out of a desire to improve business benefit, many are finding that rigorous financial processes and accountability can be left by the wayside in the process. The cloud can make business faster, easier and more efficient, but without the right controls unmanaged opex costs can create new problems for them.

The path to ‘FinOps’

The challenges of moving from a capex to opex model underline the importance of strong governance in the cloud. Fortunately, the latest platforms, cloud expertise and tooling can be used to replace or even augment the financial control being lost. Making use of the latest technology can even facilitate a new, revolutionary approach to operations. 

One of the innate challenges of the cloud – and the reason opex can spiral so quickly –

is its complexity. Most businesses that make use of the cloud run multiple public and private environments and use different providers for different tasks and workloads. The typical business infrastructure is fragmented, making it very difficult for finance functions to identify what was spent and where. If you can’t identify the source of cloud overspend, it becomes difficult to stop.

However, with a cloud management platform it becomes possible to automate the detection process and prevent mistakes before they happen. Budget controls and policies can be put in place for each environment, preventing certain thresholds from being crossed. By putting upper limits in place, you ensure cloud costs do not get out of hand.

Management platforms can also create insight factories, providing employees with actionable information. Alerts can be sent to IT and tech teams to flag mistakes and warn them if costs have grown significantly or if infrastructure has been provisioned without proper tagging. This enables them to make better decisions and respond to mistakes before they can do any damage.

These cloud management tools support a financial operations (finops) approach, combining financial accountability with improved operations and delivery. In practice, this means that the IT or tech teams that set up the infrastructure can understand the impact of their decisions, allowing them to modify or change course for the good of the business. The resulting savings will be recurring and can be reinvested in the business.

As a business grows and changes so will its IT infrastructure, with new environments being added and removed regularly. It’s important to implement an ongoing optimisation process to assess and refine the cloud estate as needed. This will facilitate cost control and visibility and allow them to identify efficiencies and cost savings down the line. While a business can manage this process by itself, it is recommended to seek out an expert partner to take off the pressure and accelerate delivery.

In moving to the cloud, companies must avoid constraining its advantages. Yet oversight is needed, and businesses have to know what they are spending and why. With the latest cloud management tools and expertise, it’s possible to preserve the cloud’s agility, flexibility and scalability within a process that’s transparent and informative. With some structure, the transition to opex can fulfil your needs and support digital transformation without breaking the bank.

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Business

THE EMOTIONAL AND FINANCIAL COST OF WORKING WITH OUTDATED TECHNOLOGY

technology

Slow Tech Could Waste 24 Hours of Worktime a Year

In this digital age, businesses are hugely reliant on technology to get work done. And this is especially the case for one-man-bands and small home-based businesses who may count on a single computer to keep things running smoothly from their home office space.

This said, if the technology at hand is slow or outdated, it could become more of a hinderance than a help. Investing in upgraded tech may seem like a steep expense, however, delays cost time and time is money. In fact, recent research looking at the impact of tech troubles in the workplace found that delays caused by slow technology could add up to a hefty 24 days’ worth of worktime a year per person.

Here’s why keeping hold of outdated tech when its past its best could cost your business in the long run.

 

The biggest tech hold-ups

Delving deeper into the research, it’s evident that the most time can be lost on some of the smallest of tasks. Simply waiting for your computer to boot up, for example, can add up to 8.8 days of lost time over the space of a year (17 minutes a day), while 8.5 days can be lost to opening emails (16.5 minutes a day).  Slow software has the most to answer for, however, contributing 10.4 days’ worth of wasted worktime (20 minutes a day). When you think about your own day rate or that of an employee’s, this lost time all adds up to some serious money, right? Probably more than it would cost to upgrade your tech.

Productivity can suffer too

Glitchy tech may not only cost your business time and money; productivity can take a serious hit too. According to the study, a third of workers admit losing motivation when they have to wait on tech to respond. And this comes as no surprise. When faced with freezing programmes and buffering browsers every day, frustration can build up. And when someone’s suffering frustration, productivity and motivation can drop. As a result, it may turn out it’s not just the tech that is slowing down tasks, but a reduction in employee efficiency too.

Tech expert and anti-futurist, Theo Priestley, argues that the issues caused by outdated tech at work can even have a negative effect on someone’s work-life balance and wellbeing. He explains, “not being able to complete work or feel productive or have a sense of accomplishment in a task can be a stressful experience. And depending on the nature of the work, more often than not, employees will need to work additional hours to compensate for the wasted time, which has a knock-on impact on personal and family life.”

 

Outdated tech can put your business at risk

Beyond the costs to your business, outdated tech can also put it at increased risk of cybercrime. The older the technology, the easier it is for hackers to exploit it. What’s more, if you don’t update your security software regularly, it won’t be equipped to address the latest security threats.

Priestley explains “outdated technology and software means easy exploitation from inside and outside the organisation. If you’re not using the latest versions of operating systems, or software that you’ve invested in, then there’s greater chance for someone to exploit known weaknesses in that system and expose or steal data or valuable company information from them.”

 

What is the solution?

Regularly assess what condition your hardware and software are in and where delays are occurring. If you find yourself waiting on the same problem day in day out, it’s probably time to do something about it. But how often should you be upgrading your IT equipment?

In general, a computer being used for business could do with being upgraded every two to three years for optimal performance. Alternatively, sometimes simply upgrading the memory or hard drive can help applications run more quickly. Any other equipment such as printers, keyboards, etc. only really need to be replaced when they break.

As for software, upgrade it regularly. While it can be a temptation to stick with older versions that you’ve grown accustomed to, the newer versions will offer improved capabilities, efficiency and security.

While computers slowing down over time seems inevitable and something that we’ve accepted will happen, it’s important for businesses to recognise the problem can have a bigger knock-on effect than you may think. By investing in updated, efficient technology, the savings experienced via productivity are likely to vastly outweigh the price of the tech itself. So, next time your computer freezes, perhaps consider whether it’s time for an upgrade.

 

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Business

OFFSHORE COMPANY FORMATION TACTICS FOR SMEs

Company

James Turner, Director at company formation specialists, Turner Little

 

Starting a business brings with it its own set of challenges, as well as opportunities. But when setting up a business, the where is often as important as the how, and knowing what to expect in terms of company formation regulations and requirements is key, so you can start your entrepreneurial journey on the right foot.

 

James Turner, Director at company formation specialists, Turner Little, takes us through what we need to consider when it comes to offshore company formation, and the benefits it can offer start-ups and SMEs.

 

“Despite what the media will have you believe, there are numerous legitimate reasons to use an offshore company. Offshore companies can often provide SMEs with access to better infrastructure and legal frameworks. Regulations in different parts of the world could prove to be restrictive for businesses by preventing foreign entities from launching factories, buying property or investing in local companies. In this instance, setting up an offshore company can help in completing transactions and provide you with the ability to hold any local assets necessary,” says James.

 

“However, one of the fundamental reasons for setting up an offshore company is often privacy. Moving assets or setting up a business is often done in a country that offers more tightly protected data security, has a robust legal framework and a network of service providers that streamline the setting up process. Switzerland is often the country of choice when it comes to privacy, as it’s synonymous with security and data privacy. Another reason SMEs should consider setting up an offshore company is tax efficiency. Tax advantages are offered by different jurisdictions. For example, Singapore has one of the lowest corporate tax rates, while the Cayman Islands might be more ideal for freelancers who are looking to minimise the effective tax rate on their businesses,” adds James.

 

“Offshore companies provide SMEs with the ability to mitigate risks that arise from political instability or currency volatility. We have already seen businesses starting to register European entities in order to limit their exposure to the fallout that may result from Brexit. Whatever the reason, spreading your operations across jurisdictions may be the best long-term business strategy SMEs can adopt to secure future growth,” adds James.

 

Turner Little specialises in creating bespoke solutions for individuals and businesses of all sizes. The knowledge and expertise of their specialists will be able to assist with any enquires, no matter how complex.

 

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