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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

HOW FINANCE TEAMS CAN UTILISE MODERN TECHNOLOGIES TO PREDICT AND MITIGATE RISK

Carol Lee, CFO of Wrike

 

There is no denying that the finance function plays an important role in every aspect of ‘doing business’. Although much of ensuring strong financial health, tracking revenue, and managing budgets will take place behind the scenes, all are key ingredients which, ultimately, determine whether a business is successful. This is even more relevant in today’s climate.

Thanks to the ongoing pandemic and resulting economic flux, each and every business has faced financial challenges in recent months. As revenues continue to falter, budgets are tighter than ever and profitability is essential.

Amid the economic uncertainty, CFOs and finance teams are set to play an important role in recovery efforts moving forward. Ensuring financial wealth and a solid revenue stream has never been more important. For many, it has also never been more difficult to achieve.

 

Real-time finance

The modern finance team needs to be about far more than month-end and retrospective quarterly reporting. The pandemic has highlighted how important this statement is, with sudden shifts in consumer demand for certain products and services driving drastic changes in revenue for many businesses. For example, at the beginning of the pandemic, many supermarkets will have seen their revenues increase, whilst restaurants and gyms witnessed significant dips following necessary closures.

In order to survive this time of turmoil, finance teams need to be able to quickly and efficiently adapt to these changes in customer behaviour. Planning projects that are expected to yield profit is no longer enough. Finance teams need to ensure that these projects maintain profitability throughout their lifecycle, controlling financials from the planning phase through client delivery. As such, tracking budget spend in real-time in order to keep margins positive and meet customer expectations is key.

Visibility needs to be front of mind, especially in our new remote working landscape, where face-to-face communications has had to take a backseat. The right performance metrics, delivered on time, can enable finance teams to track and obtain a deeper understanding of how projects and finance strategies are progressing and delivering against set objectives. They can help to determine stress points in the business and articulate events and triggers for certain financial actions to be taken.

When utilised alongside the right modern technologies, they can even help to save projects that aren’t delivering, flagging potential problems and recommending where adjustments should be made.

 

Predicting and mitigating risk

Whether it’s unforeseen additional costs, tight margins, or budget burn, these are the factors that can make or break the success of a project and, ultimately, a business. By using real-time insights, finance teams can play a pivotal role in keeping the entire organisation on track. In order to take this one step further and mitigate any potential risks before they wreak havoc, finance teams need to be able to predict and plan for a series of different outcomes. This is where modern technologies, such as artificial intelligence (AI) and machine learning (ML) can help.

Tools with these technologies can help finance teams to get one step ahead and tackle at-risk projects before they cause any issues. By identifying signals and patterns based on hundreds of factors – including past campaign results, work progress, organisation history and work complexity – they provide extremely timely diagnosis and help to minimise risk throughout the entire organisation. For each project, an automated risk assessment prediction will be issued. For both medium and high risk levels, the machine learning model will also provide a list of factors that could contribute to potential delays. The insights that these reports provide can help to save entire projects.

Once a finance team knows what the potential risk might be, they can turn their attention towards what is truly important – managing and mitigating it. This can be done by assessing a project’s ‘risk tolerance’. Put simply, how much risk can you allow before you need to act. This is an essential part of any project management process, helping finance professionals to decide on the most effective response and ensuring that resources are being used in the most effective way.

As organisations across every sector fight to get back on their feet post-pandemic, ensuring long-term profitability will be a key focus. Many businesses will turn to their finance teams to lead the charge and provide the solutions and recommendations which will ensure future economic survival. As such, having a plan in place to make sure that all projects stay on track and that any potential risks to the business are mitigated before they cause a problem needs to be a priority. By investing in modern technologies – such as AI and ML – today, finance teams are setting themselves up for success tomorrow, no matter what is around the corner.

 

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Business

TAPPING INTO THE RIGHT MINDS

David Holden-White, co-founder and managing director, techspert.io

 

The world is awash with information. Analyst house IDC estimated that more than 59 zettabytes of data would be created, captured, copied and consumed in 2020, and that the amount of data created over the next three years will be more than what was created in the past 30. The boom in consumer technology and the rapid improvement in mobile connectivity has meant that the 48% of the globe that owns a smartphone has near instant access to all the digitised, publicly available information in the world in their pocket.

 

A world overloaded by information

It’s no surprise that people talk of information overload, or how much it impacts productivity. It’s not new either. A 2012 study from McKinsey & Co highlighted that nearly a fifth of professionals’ time was spent searching for and gathering information, half of the time they spent undertaking role-specific tasks. This is only likely to have increased as we’ve become more dependent on digital tools and services.

On top of that is the realisation that, thanks to social media, we’re living in a time when anyone can be an influencer or thought leader if they shout loud enough. It doesn’t matter whether you’re pushing trainers or cloud computing, whether your audience is a broad spectrum of consumers or a niche group of B2B buyers; the tools and resources are pretty much freely available to build a profile and push your message out there.

David Holden-White

The result is that it’s becoming increasingly hard to find the value amongst vast and accelerating volumes of online data and noise, and to use that data to make accurate, effective decisions.

This is something we need to be able to do. We’re all expected to work faster, to make better decisions more quickly. The pandemic showed that certain changes don’t need five committees, two working groups and a proof of concept to take place before decisions can be rubber stamped. At the same time, no matter what industry you work in, there will be competitors who are more agile, more flexible, and seem to be much better at making decisions and capitalising on opportunities.

Yet those decisions still need to be backed by evidence, by irrefutable knowledge. What’s more, there’s only so much data can give us. We need the insights stored in the minds of true experts, with lived experiences of the particular problems, markets and technologies in question. In accessing this, we can develop a decision-making edge in businesses that competitors don’t have, that can be used to drive entrance into new markets, or for winning investment decisions.

 

Limiting risk in investment decisions

As we all know, investments are inherently risk-related, so, anyone making such a decision will do all they can to minimise their risk exposure, especially in volatile post-covid markets.

To do that requires being able to identify, consume and process information quickly. Investment opportunities, particularly in industries with significant growth capacity, come around quickly and get snapped up fast.

Those decisions will incorporate analysing and drawing insights from raw data, using publicly available and analyst-produced information. But there is also an opportunity to draw on human insights, from leading experts in relevant fields, to get a sense of the story that 0s and 1s can’t properly tell yet. Tapping into the right minds  is essential to informing investment decision-making in 2021.

In an ever-growing haystack of information, the challenge is finding them quickly. Plus, once they are found, there’s a tendency to keep using them, or to use them as a gateway to others in their network. While there’s nothing inherently wrong with this approach, it leaves investors exposed to a lack of diversity in thought that makes getting to an unbiased view of the world impossible. At the same time, casting their net wide and finding lots of experts is resource and time-intensive, at a point when time is one commodity in short supply.

So, what’s the solution? Ironically, given that the challenge is bringing the right human insight into the process, the answer could lie in technology, specifically artificial intelligence (AI). AI-powered platforms can take a request for expertise and run searches through all available published and credible material to recommend the most appropriate experts for the project in question.

It’s true that there are already services that recommend experts, but they are heavily manual and therefore slow and imprecise. It’s also true, there are also both negative and positive connotations being attached to AI. No technology is without its flaws, and if investors were relying on the AI platform itself to provide expertise then there would be cause for concern. Services that provide access to the experts themselves, however, are providing a fast way through the noise and data – it’s a car to the destination, not the destination itself. Once investors and experts are connected, the former has access to the relevant insight the latter holds in their heads. What AI has done is rapidly scan through millions of people of talent to highlight the relevant knowledge holders with pin-point accuracy.

 

Using technology to highlight the best human knowledge

Using an AI technology platform to find the most relevant human is a way of taking a resource-consuming process and finding what’s needed in a thousandth of the time. In that way, investors can get fast access to the human insight they need to make the best decisions,  allowing them to capitalise on opportunities and not miss the next big growth opportunity.

 

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