As part of my regular cloud reading, I stumbled upon a great article last week about the role of the CFO as it relates to cloud. I personally never really considered the role of the CFO, usually because I am more afraid that should I get a call from the finance department it’s usually around business performance or some unfiled expense report. But as it relates to cloud, CFOs generally have a love-hate relationship. One one hand they understand the financial benefits, but at the same time it means that costs are tied very closely with the cloud market, making it difficult to predict future expenditures.
There is no doubt the role of the CFO has changed with the adoption of cloud in organizations. It really comes down to how CFOs understand the value of cloud and how they view cloud pricing as being either appropriate or not. If they feel that as a result of cloud models, the costs for their organization’s IT groups is reduced, there will be a higher adoption rate, usually because the CIO reports to the CFO.
But CFOs aren’t necessarily the biggest fan of cloud. Firstly as I mentioned before, the market for cloud services is still a little volatile, so it is hard to predict a proper cost model. Right now cloud providers are still trying to figure out how to appropriately price these services. Monthly costs can fluctuate significantly based on usage, and this will throw off financial forecasting (especially cash flow projections). This is bad for CFOs who are required to give a fairly accurate estimation of costs.
To get around this, organizations can purchase a fixed-cost model of cloud where they commit to a certain amount of resources from the provider. This model can allow for lower cost per unit and also allows for bursting where one month might require more resources and is allocated over the entire length of the contract. For applications that tend to stay pretty flat in terms of usage, this is a viable option because it can reduce overall cost and decrease the cost risk of cost variability.
But CFOs also love the cloud because of the wonderful things it does to the organizations books. For one, it reduces capital investments, one of the key measures of an organizations business posture. By limiting the amount of depreciating assets, organizations can spend money on more important things that drive the core business objectives.
Cloud also moves organizations from capex based business to opex based business. There is a reason this is one of the most important discussions around cloud, because the more capital investments that can be removed from the organizations operating plans, the more flexible the organization becomes.
But the key benefit for CFOs really lies in the removal of uncertainty. Cloud helps reduce a lot of the capital questions associated with running an organization, which makes the job of the CFO a lot easier.
Firstly, when it comes to building applications, it’s not uncommon that projects go over in time and expense. It’s also almost impossible to project the impact it will have on the company and the market. Will it be successful? Will there be quick adoption? Will it deliver on the promises made? If it’s very successful, does the infrastructure or application need to be re-tooled or extra capabilities added?
Secondly, what if the market takes a downturn and suddenly the company needs to scale back? Here is where the pay-as-you-go model shines. The fear of purchasing assets that will be affected by the economic market is virtually eliminated with cloud models.
Lastly, what if the company is suddenly bought? What if there is a fundamental change in direction as a result of a market opportunity? Cloud models allow for quick adjustments of business focus due to the flexibility and elasticity of the model. A great option for fast moving organizations.
So as you can see, there is value in having cloud conversations with CFOs, as they can be the largest allies in creating a cloud adoption model for organizations. Cloud is no longer just an IT department discussion, it needs to happen with all areas of the organizations.