CIO Reviews: The Battle of cost advantages of cloud computing

When it comes to cloud computing, the most compelling topic is the debate over the cost advantages of cloud computing. The subject of this topic is usually "capital expenditure and operating costs", a problem that seems simple and of little significance.

In short, the ratio of capital expenditure to operating costs is based on how resources are paid for. For example, if a consumer chooses Amazon Web Services, it has to pay for the resource's usage or time. While consumers enjoy services but do not own assets, Amazon provides services and storage devices.

From an accounting standpoint, owning an asset is often considered a capital expenditure (also known as capex). It needs to take risks for the entire asset, and the cost incurred becomes an entry on the company's balance sheet and is at risk of depreciation. In contrast, operating costs refer to the costs incurred during a certain period in order to maintain the normal operation of the business. All expenditures generated within a year are credited to the income statement and will not have a direct impact on the balance sheet.

From a corporate standpoint, the balance sheet falls within the purview of the chief financial officer, while operating expenses are the financial statements of the business unit, usually with the business unit achieving higher returns within the annual budget.

To sum up, running an application and paying computing resources based on on-demand services means that these costs are within the budget (i.e., the operating expenses opex). However, running the same application and using computing resources that have been purchased and treated as assets means that these resources are capital expenditure (capex) and that annual depreciation is also a working expenditure.

Obviously, operating expenses are more desirable after all, you only need to pay according to the use. By contrast, capital expenditure means that, regardless of usage, a fixed depreciation charge is required.

In other words, cloud operators charge fees based on usage, often adding value to the cost, making the contrast between them more complicated. The IT department does not add additional profits for this purpose, so it can only charge the cost of rising costs. According to the different application of the annual payment of depreciation, will be more than itemized to the cost of each expenditure is more satisfactory. This is especially true in the automotive industry, where it is more economical to buy a car, for example, in the daily life of a living place, but for a two or three-day short trip, it would be wiser to use the car as a means of transport.

For cloud computing, there is a lot of controversy about which of the cost of capital and operating costs is more cost-effective. This is clearly reflected in our work. At one meeting, it was proposed to use AWS as a platform for deployment, and one business manager said bluntly: when you buy a server two years later, you don't want to use AWS as a deployment platform. While this is a rough financial assessment, the cost of capital expenditure as operating costs is higher than the purchase of assets and the payment of depreciation costs.

Migrating to a private cloud is far more complex than this. Before that, most organizations used one application, one server, so all depreciation was allocated to one application. Thus, the assessment of capital expenditure is relatively simple. The annual depreciation rate now requires multiple application allocations.

Today, organizations using computational resources are unwilling to pay uniformly; after all, they are only short-term use. Would they rather combine resources to make a short-term test or a short-term business plan without considering a five-year depreciation schedule? resource users expect to pay for basic operating costs; This is the market, after all. They just want to pay for what they use without caring who is providing it.

It is a daunting task for IT organizations to be firmly prepared for all these authors, to implement private clouds and to price resources, and it must be acknowledged that most IT organizations do not have the accounting system that supports tracking detailed costs.

So the best way to do this is to consume intensive resources and pay for them, and IT organizations can provide different private cloud services based on the cost budget. Can this be achieved?

It is true that every user should have an investor. Every user will be happy to pay only for resource use, and there will be a supply of resources and there will always be people who have assets on demand. For the owner of the asset, the key to the quote is the percentage of the asset used. Back to the rough estimate, the percentages used in cloud computing are examples, and it is important to sell enough time-that is, to make the most of the assets. This means that it organizations need to be complex in managing usage. This is a typical capital-intensive industry-taking the aviation industry as an example and implementing advanced management measures.

I've heard that some people claim that it's not too much of a problem to use because most applications are stable; that is, these resources don't cause a lot of change. Therefore, the common practice in private cloud for increasing usage is to build a cloud environment that can use idle computing power to meet the needs of certain peak periods. This view underestimates the ability of applications to absorb the benefits of cloud computing.

First, because of the high variable load support, the application group will begin to create more applications of this type. Before that, it was difficult to get sufficient resources for such applications, and people did not complain. Now people are going to start developing applications that support highly variable workloads.

The second way to underestimate the future is that it does not understand the changes in organizational behavior and reduces costs by squeezing applications during periods of low demand. Forrester's James Staten is characterized by "descent", which means using applications or shutting down resources to reduce cloud computing costs. This method is user-generated, but brings trouble to the provider.

Finally, the cloud will use the infrastructure as it has in the past, mainly for stability and low growth, and does not understand how price laws work. If cloud computing is cheaper, people will use more. That's why we're predicting future applications in Hyperstraus. This will affect the use and development of the plan. Not everyone agrees with us. Read the comments on the plan and know that the problem we face is the interruption of the data center. No one will predict when there will be the first customer to install the application server. We live in a time of data sharing. Cloud computing is going to bring this demand, come on!

What are the benefits and risks of this shift in operating costs? There are several points to note:

1. Revenue management will become the core technology of it.

If the user is no longer exposed to the risk of use, the organization has to be carefully managed to ensure adequate use and financial viability. It's a big difference for consumers to buy equipment and sell it to consumers with the risk of not being fully equipped. In the past 5%-10% usage rates in it are disgraceful; in 2009 people blame manufacturers for low usage rates to prove the economy is in trouble. The production utilization rate is 69%. It will do more and better.

2. High-profit It disasters are no longer new in the industry (witnessing the collapse of newyork "CityTime") maybe it's not the industry that's stuck in the lurch but doomed to failure. The important point is that there is a direct relationship between pricing and use, so reducing usage can affect profitability:

Increase usage, or streamline standby equipment.

3. Financial management is essential for private clouds.

Track usage, pricing, market demand, not the technology currently needed by most IT organizations. This will change immediately. One might say that the projected IT business is business, and that all relevant factors need to be taken into account.

4. Risk management will be included.

The risk of exposure of capital-intensive industries to financial use is very high. It is vital to find a way to manage risk in the future. Recently I met strategic Blue, which I paid to the middleman to deal with the risk of use. This is true, and it may be gratifying that entrepreneurs ' concerns in this area are indicative of the problem. It is too early to say what the company will do, but it is no exaggeration to argue that it is more risky than the traditional model. As usual, I was attracted by the development of technology and convinced that it had changed a lot-and benefited a lot. In a sense, it will uncover a new page. However, it requires the same rules and financial management, so the problem of using risk applies to the IT field.

(Responsible editor: admin)