How to Calculate Cloud Computing Costs

From CAPEX to OPEX

There are plenty of models and methods out there for budgeting projects and managing cost centers. Unless you manage a cost center yourself, you may never have had to deal with the financials related to information technology. IT professionals have enough to do to keep up with the latest practices in their particular areas of expertise. But as careers develop, even the best of us find that we have become wrapped up in matters of budget and finance. Rather than espousing a particular financial method, let’s look at tech budgeting in broad strokes.

The traditional computing model was dependent on significant capital expenditures (CAPEX). The one-time purchase of hardware, software and licenses meant that companies had to squeeze as much work out of these resources as possible throughout the life cycle of these platforms. There was always a strong focus on the maintenance and configuration of proprietary machines. This meant that vendor support was essential to keeping systems current and healthy.

Just as a reminder, capital expenses related to the traditional data center include: servers, switches, routers, firewalls, storage, load balancers, software and licenses. The technical expertise required for installation and maintenance of these systems also costs money in terms of salary, wages and subcontracting expenses.

The advent of the cloud changes all that. The cloud allows businesses to focus on services rather than the underlying technologies. That means that IT budgeting moves away from CAPEX and pays for the cloud as a recurring operating expense (OPEX). In fact, many IT costs become difficult to track because they move to other cost centers. For instance, cloud financial services may now be covered by a company’s finance department. What were once considered IT services in the old data center model have become known by the functions that they are addressing rather than the technology that runs them.

So who pays for cloud services? It could be the sales department, or finance, or operations. Increasingly IT departments may play a lesser role.


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Written by David Scott Brown
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David Scott Brown has more than 15 years experience as a freelance network engineer. He has worked in both fixed line and wireless environments across a wide variety of technologies in Europe and America. David is an avid reader and an experienced writer.