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Investors, shareholders, and creditors are all familiar with financial risk—the potential for uncontrolled financial loss and the uncertainty it brings. When it comes to public cloud computing, financial risk also needs to be considered. Because cloud computing shifts IT spending to a pay-as-you-go model (OpEx) instead of paying upfront (CapEx), the OpEx model sounds perfect. You can use what you need when you need it. What could possibly go wrong?
With a hybrid cloud infrastructure, you can deploy software wherever it makes sense to do so. Sometimes the criteria are technical, such as optimizing for application performance. Another important issue for business stakeholders to consider is financial risk.
In this article, I look at four scenarios for deploying workloads and analyze the financial risk of each. This information could help you decide what workloads to deploy with a pay-per-use OpEx model and which may be better suited for a CapEx model. In the scenarios below, I refer to public cloud as representing the OpEx model and private cloud as a CapEx model.
Your developers wrote a new application for your customers. It generates revenue from everyone who uses it, based on a pay-per-use model. As long as the revenue you receive from the application is greater than the cost for putting it in the public cloud (and you receive payment prior to your cloud bill), all is well.
Financial risk = none. Congratulations, you have selected wisely! Your revenue-generating application is a winning business model in the public cloud.
Your developers created a new application that is freely available for your customers to use. You’re not certain how many customers will take advantage of the software, but you made initial calculations. If only a portion of your customers use it, you can afford to pay the added costs incurred in the public cloud.
But what if your app becomes wildly popular? The good news is: Your application is very popular. The bad news is: That popularity is costly!
The new application may provide you with some indirect financial benefits, yet you may not be able to count on these benefits offsetting your escalating cloud deployment costs. Remember, you don’t have any direct revenue associated with the application, which means you must pay for the added costs from your bottom line.
Financial risk = high. You may want to tread carefully here. Your non-revenue generating application running in the public cloud may just put you out of business!
Because you know how many customers you have, a customer support application in the public cloud seems like a predictable expense, therefore, the financial risk should be small. You’ve run the numbers, and the cost for implementing this workload in the cloud is known and stable. Since you budgeted the expense, as long as revenues are growing, your risk is low.
But what if sales misses expectations for the quarter and your CFO determines each department must cut 20 percent? That leaves you in a bind, since you can’t cut 20 percent of your customers. If your workload were in a private cloud or on premises, you could make up the difference by delaying a budgeted technology refresh. That is not so in the public cloud, since the cost to support the application is fixed, based on the number of customers using it. If you cut the cost, it reduces the number of customers you can support.
Financial risk = medium to high. You probably should build in a contingency plan for this public cloud deployment. If revenues slide, you may need to make deeper cuts elsewhere.
Spending CapEx dollars for IT when you are unsure of what you need isn’t smart business. Yet, the opposite is also true. When you have a workload with known demand, why would you overpay to put it in the public cloud?
Renting capacity in the cloud is likely cheaper and faster than building out your own infrastructure. But it becomes more expensive over time.
If your workload is committed to run at a certain level over a long period, you may save money by purchasing the infrastructure upfront. Since you already know how much you need to spend to run the workload, why not invest that money in your own infrastructure instead of paying a premium to someone else? At the end of the application’s lifecycle, you may have paid two to five times as much in OpEx compared with an initial upfront investment in equipment.
Financial risk = medium to high. Although this particular workload placement decision isn’t a devastating financial risk for your business, consider looking to private cloud for a smarter long-term strategy for this type of workload.
Every business needs to take stock of its applications and determine the financial risk of deploying in the public cloud versus deploying on traditional IT or in a private cloud. Thanks to new technologies such as composable and hyperconverged infrastructures, it has never been easier to build a private cloud with simple integrations, subscription payment models, and elastic capacity. Combining on-prem infrastructure with public cloud lets you place each workload where it is best suited, thereby lowering your financial risk.
This article/content was written by the individual writer identified and does not necessarily reflect the view of Hewlett Packard Enterprise Company.