Making the Business Case for Infrastructure - Part Two: Advanced Analysis - Pass This to your Finance Guy

This is Part Two of a two part series - to see the first article, "Making the Business Case for Infrastructure - Part I: Rent or Buy? (Capex vs Opex)", click here

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In this section, we’re going to discuss the world that CFO’s live and breathe in. But don’t be alarmed - even if you’re an infrastructure professional, there’s some valuable information in here. The more that IT experts know about how a business runs, the more effectively they can collaborate with their financial colleagues, to help the business achieve its objectives.

CPRF: The Four Categories | Cashflow, Profit, Risk, Focus

The recent shift in IT to the cloud is complex, and requires the traditional CFO/accountant to really take a much bigger picture look on how the company is investing its money. To be blunt, if you just took a black and white approach, you may shy away from OPEX - but if you really assess these four categories and do a true assessment, you'll find that the OPEX route is the better way to go.

There's four things you're weighing:

1. CASHFLOW: when you buy something, you're putting out a lot more cash upfront than renting. If cash flow is a concern, you're going to want to rent. If you're a startup, that's when you probably want to rent; a portion of cloud computing's growth has been in startups taking advantage of massive computing power without having to invest in their own data centers, so that they can hit the ground running with minimal investment.

2. PROFIT: From a profit standpoint, using EBIDTA as a metric, when you buy something CAPEX, it's more favorable to profitability, at least "aesthetically" - it's all in the interpretation, but the immediate thought is that it will be unfavorable. But the more sophisticated you get, the profitability in the long run could be more profitable under OPEX; it takes more work to get there. Ex: if you are renting, there isn't a traditional capital value, but there is value in other areas like the people. It can be hard to translate in traditional terms to a P/L, but there's significant non-traditional value; the expertise of the people you have access to and who are supporting your efforts.

3. RISK: From a risk standpoint, risk is higher in CAPEX than in OPEX, based on general assumption that a provider has significantly more expertise in managing infrastructure than the company itself does.

  • In-house scenario = more risk: (ex: "yep, there's mission critical apps in the server, and oh I see that there's a big gulp in there too sitting on the server")
  • Managed scenario: level two data centers, certified techs, military grade diesel generators. We're able to do it at a scale that an individual company  can't do it. Significantly less risky.

4. FOCUS - operational competency/focus: this is less black and white financially, but where should you focus our finite resources, time, and effort?

A: Doing app development, product development, dealing with supporting/serving customers? (= focus)
OR
A: Supporting infrastructure, managing servers, maintaining limited continuity? (= limited expertise, limited focus)

Conclusion - "Focus on what you do the best, hire others to do the rest"

In the end, hundreds of thousands of IT professionals and small to mid-sized businesses have circled back to the age old principle of focusing on what you do the best, and this has helped to fuel intense growth in the cloud computing industry. The tools are there for offloading infrastructure, reducing risk, saving money, and IT professionals can harness them to help their business run more efficiently, with more focus.

OFFLOADING RISK > QUESTIONS?

If you have further questions on offloading risk, advanced analysis, or the CPRF model (Cash flow, Risk, Profit, Focus), we invite you to contact our Technical Sales Division with your hardest questions, at: technicalsales-at-singlehop-dot-com

READ PART ONE

This is Part Two of a two part series - to see the first article, "Making the Business Case for Infrastructure - Part I: Rent or Buy? (Capex vs Opex)", click here