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Why CFOs and cloud computing have a love-hate relationship

Bernard Golden | March 14, 2012
Cloud computing offers a value proposition that can be both appealing and unsettling to the CFO. However, CIO.com columnist Bernard Golden explains why freeing up capital investment should more than make up for the uncertainty of variable monthly pricing.

This approach has the virtue of reducing the cost variability, although it still requires some element of forecasting. For applications with a predictable base level of demand and only occasional unforeseen spikes, this approach can reduce the overall cost and decrease the risk of cost variability.

My own belief is that if finance departments save significant amounts of money compared to traditional methods of funding IT, they will learn to deal with any uncertainty. I also expect a number of businesses like Strategic Blue to spring up. Strategic Blue applies financial techniques to enable its customers to achieve predictable pricing while still enjoying the benefits of on-demand use. Many of these sorts of futures-oriented financial intermediaries will come into existence to address this issue and mitigate the uncertainty of variable pricing.

Why CFOs Love the Cloud

Now that we've addressed hate, let's look at why CFOs love the idea of cloud computing.

It's important to recognize a critical role CFOs play in acting as the arbiter among all the competing demands for corporate capital investment. Every corporation has an ideal level of capital investment that is often dictated by a necessary balance of debt versus equity and reinforced by the discipline of the capital markets (read: Wall Street). And every corporation typically has more demands for capital investment than it has financial capacity to support. The task of deciding which of these demands to satisfy falls to the CFO.

Consequently, anything that offers the capability to shift spending from capital investment to pay-as-you-go is inherently attractive to a CFO. That frees up capital investment for other purposes. This is nothing more than the "CapEx vs. OpEx" topic that is common to financial discussions relating to cloud computing. The fact that this issue is well known and widely discussed does not negate its value or importance, however. Excising one type of capital investment from the group of demands is extremely valuable.

But there are additional benefits available from cloud computing from the CFO's perspective. These primarily relate to the pattern of spending on cloud computing compared with traditional infrastructure.

Essentially, paying for on-demand cloud computing enables businesses to avoid making a large investment at the commencement of a project. In other words, a company has no need to make a large computing investment in the early phases of creating an application. As we've just discussed, the uncertainty of how much the monthly bill for a cloud computing application will be disquiets the CFO. In my view, the ability to avoid a large capital investment trumps the uncertainty associated with monthly charges. Put another way, there is more uncertainty associated with making large capital investments than there is in the monthly variation of application costs.

 

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