Issue link: https://cp.revolio.com/i/886554
4 | THE DATA CENTER JOURNAL www.datacenterjournal.com IT BUDGETS BY THE NUMBERS A ccording to David Wagner, Vice President of Research at Computer Economics , "IT spend- ing is flat. As a percent- age of revenue, it has been between 2.3% and 2.5% for the last five years. Spending is basically matching infla- tion." is data is based on a survey of North American companies as well as other companies with a major North American presence. In real terms, then, these companies have on average been getting by with the same IT funding for years, despite continu- ally rising demand for services. "At the same time, most IT departments are being asked to do more with the same budget, and they're rising to the challenge by finding efficiencies in the cloud, automation and best practices," said Wagner. Initially, the situation appears grim: the average business relies more and more on IT services, but the money it's willing to spend in order to provide those services is staying about the same. e picture would seem to be one of overworked employees, underfunded (and therefore grum- bling) managers and a brutally stingy C-suite. But one additional factor changes the situation from gloomy to promising: cost. "IT operational costs per user are on a major decline," said Wagner. Im- mediately, the situation achieves a new tone: flat IT spending doesn't mean available resources are static from year to year. According to Computer Economics data, the inflation-adjusted operational cost for each user in 2013 was $9,276, but it fell dramatically to $6,843 in 2017. at's a compound annual growth rate of about –7%. Here, "users" are defined as employ- ees, contractors, temps, agents and partners (but not customers). "e cost per user has decreased all but one year since 2012, and the year it didn't was basically flat," Wagner said. "e downward trend in spending per user shows that IT organizations are doing more with less." e question, then, is what these cost declines mean. A cynical prima facie view might be that companies are reducing the quantity or quality of their IT services to reduce costs and thereby keep budgets flat. But that view would assume that users would accept such downgrades. Instead, companies appear to be availing themselves of new IT models that are changing the way service delivery takes place, in addition to how much it costs. CLOUDY DYNAMICS Although some have debated the financial benefits of the cloud, the decline in per-user costs has occurred in conjunction with the increasing emphasis on cloud-based IT. What remains to be determined, then, is the extent to which the cloud is respon- sible for these cost declines and, therefore, flat IT budgets. Breaking down the Computer Economics data somewhat reveals that the portion of IT spending on operating expenses (opex) relative to capital expenses (capex) is growing. is dynamic certainly comports with a partial move from traditional in-house IT to cloud-based IT, includ- ing virtualization, soware as a service (SaaS) and the public cloud/Internet. Wagner notes that "for many years now, median capital budgets have been flat while median operational budgets have been rising at a modest 2–3%. Obviously, if you have one part of the total IT budget staying the same (capital) and the other rising modestly (operational), the part that's grow- ing will take a larger share of the pie. SaaS and the cloud trade off capital infrastructure (data centers, servers and so on) for subscription fees, which are operational expenses." And with some minor deviations, the data indi- cates that company size has little effect on this trend. As expected, though, capital expenses tip slightly toward larger companies, which have already invested in IT infrastructure and re- quire periodic refreshes to maintain its value to the business. Smaller, newer companies tend to have fewer hard- ware commitments. e story of flat IT budgets therefore seems less about fiscal and economic problems and more about a change in service-delivery models. Although certain unresolved chal- lenges continue to face the broader economy—such as burgeoning fed- eral- and state-government debts, low money velocity, and low labor-force participation—other measures look good, such as the headline unemploy- ment rate and stock-market values. On the surface, at least, the economy has rebounded from the Great Reces- sion. erefore, flat IT spending seems Although some have debated the financial benefits of the cloud, the decline in per-user costs has occurred in conjunction with the increasing emphasis on cloud-based IT. What remains to be determined, then, is the extent to which the cloud is responsible for these cost declines and, therefore, flat IT budgets.