IT Budgets Partly Sunny Thanks To The Cloud
June 26, 2017 Dan Burger
Lowering costs is not the only thing to scrutinize when noodling the idea of moving selected IT workloads to the cloud. But people do tend to focus on that and wonder if the cloud saves money or if the costs just get moved around like the pea under the shell in the old carnival game.
Computer Economics, in its latest report on IT spending, presents data that credits cloud for the continued success of do-more-with-less strategies in IT departments of all shapes and sizes. The report backs that up by unearthing a five-year pattern of IT spending reductions figured as a percentage of the overall capital budget.
Mainly because the cloud deflects capital investments to purchase computer hardware and software licenses, it gets the lion’s share of credit for the CapEx reduction trend. There are other factors to take into account, but these are two big ones.
As capital expenses decrease, operational expenses increase – a trend that’s expected to continue.
Computer Economics expands the definition of cloud to include a huge set of technologies that incorporates providers of infrastructure as a service, software as a service, private clouds, virtualization and other hallmarks of a software defined data center. In other words, if it can be responsible for the changes from CapEx to OpEx, it fits into the Computer Economics cloud definition.
According to the report, IT departments have decreased capital spending from 24 percent of total IT spending in 2013 to 18 percent in 2017. Meanwhile, overall capital spending held steady and operational budgets expanded.
“The cloud transition is far from over, and we’re already seeing more efficient IT departments, particularly on a cost-per-user basis, which is at a new low,” says David Wagner, vice president of research at Computer Economics, which is based in Irvine, California. “Business applications and network infrastructure, which includes security, are the top areas of new IT spending, while the data center, for the first time, is at the bottom. We take this as a sign the cloud transformation is continuing in earnest.”
A review of the executive summary, which is a free download from the Computer Economic website, we see total IT spending as a percentage of revenue has decreased from 2.5 percent of revenue to 2.3 percent. IT budgets are increasing, but at a slower rate than revenue, which leads to the slight drop in IT spending as a percentage of revenue. Because revenue is increasing for most companies, nearly two-thirds (65 percent) of organizations are increasing operating budgets.
There’s good news in this report for executives with choke holds on their budgets. For IT staff stretched thin and often required to take on added responsibilities when co-workers retire without replacement, the same news brings more than just a bit of apprehension. Computer Economics pegs spending on personnel at 40 percent of the average IT department budget.
There was a time when companies grew the workforce and the infrastructure grew with them. That’s not seen as often these days. Hiring remains flat even though there are more companies increasing their demand, traffic and revenue.
“It’s definitely a goal not to increase staff,” Wagner says. “But it may not be a goal to decrease staff. However, reducing personnel spending is doing something pretty significant. We’re not seeing many companies wanting to cut staff, but we’re also not seeing hiring keep pace with revenue growth. The need for lower skill IT jobs is less, but the need for higher skills to fill IT jobs is increasing. There is a change in the staffing ratios, but not in head count because technology is allowing those with the right skills to manage more bandwidth with the same head count.”
By the numbers, Computer Economics reports 49 percent of companies are increasing their IT headcount, 31 percent anticipate no change, and 20 percent are decreasing their IT workforce. The rate of organizations decreasing staff is high enough that it cancels out the companies that are increasing. Therefore, the median headcount is flat.
Depending on how secure your job is, the current environment of moderate growth in IT operational budgets with slow-to-no growth in IT staffing levels and IT capital budgets is not necessarily a reason to be pessimistic. Job opportunities are most likely to be found in the areas of business analysis, data analytics, project management, IT security, and vendor management.
There’s good news for the long-term success of IT departments, the report says, because a bigger portion of the IT budget will be in variable costs, increasing flexibility and making it easier to manage.
New technologies, including cloud applications and cloud infrastructure, are increasing the confidence in IT budgets.
Another indicator of the positive effects of increasing the OpEx portion of the IT budget is the decline in those who believe their IT budgets are inadequate. A year ago, 60 percent believed their IT budgets were inadequate. The most recent report trimmed that number to 52 percent. The report attributes this to “new technologies, including cloud applications and cloud infrastructure, [that] are allowing CIOs to more quickly and cheaply roll out new IT capabilities.”
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