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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