IT Budgets Pointing to the Cloud, Expansion

At first, one financial services company didnt believe a cloud provider was a possible option because of financial compliance rules and client audit concerns. But it was surpised when the provider said it could meet all its needs. But the provider, in this case BlueLock LLC in nearby Indianapolis, said it could meet all the security rules, service levels and disaster recovery needs

By Patrick Thibodeau
Tue, July 20, 2010

Computerworld — When debt collection agency Deca Financial Services, LLC was formed last year it had two IT paths: It could buy its own servers, software licenses, and hire an administrator, at a total of cost of about $700,000; or turn to a cloud provider with first year cost of about $60,000.

Cloud Computing: Today's Four Favorite Flavors, Explained

At first, James Hefty, director of operations at the Fishers, Ind.-based company, didn't believe a cloud provider was a possible option. It had financial compliance rules and concerns such as a client audit.

But the provider, in this case BlueLock LLC in nearby Indianapolis, said it could meet all the security rules, service levels and disaster recovery needs. "We very quickly realized with a little bit of analysis that everyone benefits from it," Hefty said.

Deca has its own network, router and firewall and server in an HP blade system and VMware (VMW) environment.

Brian Wolff, vice president of sales and co-founder of BlueLock, said Deca is getting cloud services, even though it has dedicated resources because it can scale on demand, is virtual, fault tolerant, and available through the Internet.

As a new company, Deca had options. Larger companies are unlikely to make a wholesale shift to the cloud services, but they are setting budgets toward on-demand services and the cloud and away from capital expense, said analysts.

"We have never had the ability to run hardware on a software operating model," said Robert Whiteley, an analyst at Forrester Research Inc. But now that IT manages do have the ability to buy hardware as an operational expense, budgeting for it, he said.

IT managers have typically set aside about 70% of their infrastructure budgets to ongoing operations and maintenance, with the balance for innovation.

But a Forrester survey of some 2,600 in companies ranging from SMBs to the enterprise found that IT managers intend to reduce IT operations and support spending to 50%. The innovation share of the budget will remain at 30%, but the balance will go to expansion of capacity to support business growth.

Whiteley said users are reinvesting in capabilities, such as making plans to buy storage from a cloud provider that can scale to business expansion needs.

The Hackett Group Inc. (HCKT), an advisory firm, saw the need for a variable IT budgeting approach in its own surveys. Companies want the ability to maintain IT cost with revenue changes, which is making on-demand sourcing critical.

Honorio Padrn, a principal and global practice leader at Hackett, said users want as much variability as possibility, and pricing that is based on daily usage and consumption.

Continue Reading

Originally published on www.computerworld.com. Click here to read the original story.
Our Commenting Policies