IT professionals often view cloud computing as a challenge to on-premises implementations. While this is true, the cloud also provides the financial planning and analysis (FP&A) function with a ready way to rapidly deploy advanced planning approaches. Read on to discover how cloud computing enables rapid FP&A technology deployment and find responses to common objections to using the cloud.
The need for rapid deployment in FP&A
The FP&A department in most organizations faces tremendous demands because the planning function serves as the organizational brain. It reads inputs of current performance in light of a changing external environment, constantly develops evolving courses of action to transform current capabilities into what the expected future requires, and tries to keep the organization on the path to prosperity.
These tasks have become increasingly difficult as the pace of change in the world accelerates. Company risk is heightened by changes in key commodity costs, currency rate fluctuations, and actions of key customers and competitors. Recent market volatility has shown that old approaches such as relying on traditional annual budgets are simply not adequate. According to APQC and Beyond Budgeting Roundtable research, roughly two-thirds of organizations find the budget targets out of date four to six months into the year.
The need for expanded tools is compounded by international growth, which is aided by evolving technologies that lower the barriers to communications and enable global sales forces. These international markets represent the best revenue growth opportunity for many organizations.
While much of the growth is organic, it is also coming via acquisition. Unlike the annual planning calendar, these business opportunities can present themselves at any time. FP&A departments need to be prepared to evaluate potential actions, as well as quickly assimilate growth into organizational plans. Emerging areas often operate on different business models that old planning methods are unable to support. New, faster approaches are needed, which creates opportunities for cloud computing.
Advantages of cloud computing in FP&A
For FP&A functions, cloud technology can have several advantages over on-premises packages. There are at least five key benefits to cloud computing:
- Faster deployment. Cloud computing can be deployed in hours rather than weeks. By getting up and running more rapidly, organizations see returns much quicker.
- Lower up-front costs. Cloud computing is typically charged as a usage fee rather than purchased, so the front-end costs are lower. Organizations also avoid purchasing hardware and the related installation costs.
- Greater flexibility. By leasing what you need, organizations have more flexibility to test and see if the applications are driving expected results. Lower costs enable companies to test many alternative approaches.
- Upgrades are deployed by the vendor. This not only reduces costs but frees up management time. No one tries to decide if and when you should upgrade -- it just happens. In addition, it keeps everyone using the same version of software.
- Cloud costs are treated as an operating expense rather than a capital cost. This saves capital investment flexibility.
Overcoming objections to cloud computing
In many ways, the early objections to cloud computing have been dispelled. It is now clear that cloud computing provides a viable alternative to on-premises systems. But there are still two major objections to cloud computing that seem to attract a fair amount of attention: security concerns and worries about total cost of ownership (TCO).
When cloud technology first emerged, many on-premises vendors dismissed it by asserting that customers would never agree to have a third-party provider process their sensitive information. This seemed to be a fairly reasonable counter until you consider all the sensitive information constantly passed over the Internet. Viewed from that perspective, it's clear that security is a concern for any sensitive corporate information, regardless of whether a company uses cloud-based technology. It should be evaluated in the same way on-premises applications need to be evaluated.
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One unexpected security benefit that cloud vendors have is that they are constantly evaluated by their current and prospective customers. Because security is often the seminal issue they are asked about, cloud vendors must lead with proactive approaches to remain viable options. As to sensitive versus nonsensitive information, cloud proponents often point out that the most widely used cloud system is Salesforce.com (and what could be more sensitive than an organization's customer information?).
Likewise, TCO is an important factor in any software selection process. When cloud vendors claim lower hardware, maintenance and other IT costs, they are merely referring to what is billed to the customers. Many of these costs are still incurred by a cloud vendor, so it stands to reason that their usage fees must recover them to maintain their long-term viability. But to make appropriate conclusions, you must understand all the elements included or excluded from the TCO calculations and the assumptions about how they are treated.
When a single company incurs installation, maintenance and upgrade costs, the cost is averaged over all of its licenses. When a software vendor incurs the same costs, the costs are spread over its entire user base. Simply put, a cloud vendor has much greater economy of scale. Organizations with many users that keep software for long periods of time have a greater chance of flipping the TCO equation. Those organizations also have an excellent opportunity to negotiate a lower price with the cloud provider.
Further spread of cloud
The strong case for the expansion of cloud computing within FP&A points to further opportunities for the cloud in other parts of the business. At its heart, cloud computing benefits from a simple reordering of cost economics. It improves the economic case for software tools by bundling IT functions into a common provider (the vendor). This improves business in many ways:
- Vendors better understand how customers are actually using the products, which enables faster improvements to software functionality;
- Customers get faster deployment, yielding quicker and higher returns on investments, and also leaving more time for additional experimentation and innovation;
- Lower initial costs frees cash for more IT projects; and
- More management time can be focused on serving customers rather than managing IT.
It may be time to look for clouds in your future.
About the author
Steve Player is the founder and managing partner of The Player Group in Dallas, and the North America program director for the Beyond Budgeting Round Table.
This was first published in July 2013