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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.

There are three types of uncertainty that cloud computing can reduce: 1. Application Scale Uncertainty

One of the greatest challenges during the early phases of creating an application is the uncertainty associated with it. Will it be successful at all? Will it grow gradually? Might it experience skyrocketing adoption?

Traditionally, the need for capital investment in kit required a forecast in a period of uncertainty. That meant that one had to make a bet before knowing what the payoff might be. Even worse, if the application is placed into production and then, some period later, experiences a very heavy load it will require an "emergency" capital investment that can disrupt subsequent capital planning. As I discussed in a recent blog post on the consumerization of IT, applications are going to experience much higher levels of load variability, exacerbating this longstanding problem. The ability to match capacity to load and pay for only what is required significantly reduces uncertainties of the application's scale, offering significant benefits from the CFO's perspective. 2. Company Uncertainty

While mergers, acquisitions and downsizings have long been a feature of the business landscape, the pace of change in this area seems to be accelerating -- a lot. All of these organizational changes disrupt many aspects of business activity, but one prime area is in IT. The number of users for an application can quickly grow or shrink based on events driven by company strategy. Trying to assess the IT impact during the post-announcement, pre-implementation period of a major corporate change is difficult.

From the perspective of a CFO, the uncertainty associated with corporate maneuverings is large. Being able to respond to corporate changes without having to address computing infrastructure reduces the challenges of company uncertainty. It seems likely that the flexibility offered by pay-as-you-go will outweigh the uncertainty of fluid monthly fees. 3. Economic Uncertainty

Looming over all other types of uncertainty is that of the overall economy. Who can confidently predict what the economic situation for any country will be in 12 months' time? If you're a CFO, knowing that the storm tides of the global economy may crash upon your company is disquieting, to say the least. Making capital investment decisions in such an environment is extremely risky.

It's easy to see the result of what happens when capital investment decisions are made in a period of economic uncertainty. The total level of investment plummets. Since the onset of the financial crisis in 2008, corporate profits are up, but private-sector investment is significantly lower.

Taking advantage of the on-demand model of cloud computing would make the risk of IT decisions during such a period much lower, and foster increased use of IT. In fact, one could argue that, given such a troubling economic climate, companies might launch more IT projects due to the need to find new areas of growth and innovation.

 

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