How is Cloud Computing changing your company’s IT financials? There are many paths your company can take to manage its IT budget through licensing, contracts, bundled expenses, pre-post paid elements, and CAPEX.  Thank you to Jake Gerstein, CIO at Jet Support Services Inc. for facilitating on the topic IT Budgeting and Cost Control for Cloud Computing and to Snapsheet & Elkay Manufacturing for hosting.

The meeting began with Jake making sure we all knew that information contained in this presentation did not constitute legal, financial, or tax advice and the accuracy of information contained herein is not guaranteed J. That being said, we moved quickly into explaining what cloud computing was.  Jake touched on three main components of Cloud Computing; Software as a Services (SaaS) for Web-hosted applications, which is licensed typically per user; Infrastructure as a Service (IaaS) or Platform as a Service (PaaS), licensed typically by resource consumption; and understanding the need and want for multi-year commitments.  Many times, by taking this route, your company will get be guaranteed a discount and pricing certainty.

By moving parts of the technology to Cloud Computing you are using licenses that are consumer driven and should look for multi-year contracts.  You need to understand that with this program CAPEX becomes OPEX. In Jake’s experience, the financial departments typical prefer this model for better forecasting, but you need to make them aware that as you plan for growth the cost will increase. Additionally, you are more than likely to have bundled expenses and get billed more frequently.  This is typically by GB, hour, or user/month and all infrastructure elements are usually priced separately. Finally, the finance team needs to understand that “cheaper” alternatives might actually cost more to run in the future when you look at all the services needed.

Jake also touched on the need for Cost Transparency within the organization. As an organization grows budgeting can be linked directly to headcount growth and you will have the ability to allocate granularly across people and divisions. This will also motivate good behaviors and you have the potential to treat as COGS.

When budging for Cloud Services/Computing there are several risks that you need to be aware of including; failure to “turn services off” when not needed, unexpected cost elements, cheap hourly and per user rates scaling, vendor lock-in (only using one vendor) and contract limits scaling back. Jake recommends a multi-vendor approach in this model to mitigate against some of the risks and to increase your flexibility.

One of the most eye-opening parts of this discussion was the Chicago Lease Tax, also known as the “Cloud Tax”.  Cloud technologies can fall into four different categories:

  1. Purchase (IL sales tax)
  2. “Cloud” computer access (5.25% lease tax): Nonpossessory lease; customer provides data
  3. Subscription services (9% lease tax): Nonpossessory lease; vendor provides data
  4. Possessory lease (9% lease tax)

If you are interested in learning more about IT Budgeting and Cost Control for Cloud Computing, check out the slide deck here.

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