A clear presidential push becomes apparent reading the FY2013 budget. The White House is calling for Federal agencies, health departments among those, to shift IT budgets from a capital expenditure basis to one built on operational spending. In their words, the generation of a “more agile, operational focus” – and the cloud computing model is one way of embracing that expenditure agility, IT-wise.

The MeriTalk report, ‘The Color of Money,’ underwritten by Brocade, a network solutions company, aggregated responses from 102 Federal IT managers and 102 IT Federal finance professionals to outline their level of preparation for the shift, and what steps they think it will require.

Most strikingly, the study found that 70 percent of Federal financial professionals see value in the CapEx to OpEx transition for IT, however only 36 percent of IT managers are considering the change.

[Measures: Top 10 HHS IT projects in Obama's federal budget for 2013.]

“Federal financial professionals believe that OpEx for IT makes good sense,” the report says.

“There are three reasons why IT managers should look at IT as an operational expense," said MeriTalk founder Steve O'Keeffe. "Shrinking CapEx budgets, stable OpEx budgets, and cloud computing enablement. OpEx is where the money is and will be.”

On the manager side, though, the demands of such a change really must be outlined. The report states: “Federal IT managers can start the transition, but will need help on momentum.” To generate this unfolding federal IT managers will have to sift through layers of new approvals, the study found.

What composes this sort of OpEx will have to be clarified as well. Currently, “Federal financial professionals offer very little consensus on what constitutes OpEx for IT,” MeriTalk states in the report.

Along with these findings, the main highlights of the study included:

• Budget cuts are deep, long and real: agencies will not see 2011 funding levels for another 10 years
• A major shift in expenditure patterns is occurring: 82 percent of Federal IT managers have the same or less Capital Expenditures approved this year, and:
• 66 percent of Federal IT managers have the same or higher Operational Expense budgets this year
• 70 percent of Federal finance professionals believe a transition from CapEx to OpEx for IT will benefit their agency
• 59 percent of Federal finance professionals think OpEx funding will give agencies a grasp of IT budgets
• Federal IT managers believe network and data center infrastructure are likely places to transition funding

The budget proportions featured in the report delineate that – despite the need for clarification – change is coming to agency spending patterns. Federal IT managers have been observing a mix in the funding for IT programs.

[Measures: Surprising HIT opportunities in Obama's federal budget.]

This adjustment has been driving progress, too: “Of federal IT managers who have shifted funds from CapEx to OpEx, 33 percent did so to advance a project that would otherwise have been unable to proceed,” the report stated.

“Looking at IT as an operational expense opens up new avenues of savings, control, and simplicity for Federal IT managers,” said Anthony Robbins, vice president of federal sales for Brocade. “But like most new concepts it takes time to truly understand the value and how to unlock it.”

And these new avenues could lead to:

1. Increased leveraging of existing funds, according to 46 percent of Federal finance professionals
2. Increased alignment of actual consumption with the cost of consumption, according to 41 percent of Federal finance professionals
3. Reduction of the risk of CapEx not meeting savings or return goals, according to 34 percent of Federal finance professionals
4. Making the budget easier to justify to the Office of Management and Budget, according to 34 percent of the Federal finance professionals
5. Making the budget easier to justify to appropriators, according to 34 percent of the Federal finance professionals

Beyond acquirement of this skill set, the study found that an OpEx shift could be an important ingredient in cloud computing.

“Said another way, it doesn’t make sense to buy cloud computing as a service and the network infrastructure as a capital investment," O'Keeffe explained. "Both purchases need to be the same color of money.”

Here are three highlights from the study on the OpEx and cloud computing relationship, and the cloud’s possibility for savings:

• 72 percent of federal IT mangers agree that conversion from CapEx to OpEx is necessary to implement public or community cloud computing.
• 60 percent of Federal finance professionals favor cloud computing as a way to reduce agency IT budgets
• 76 percent of Federal finance professionals agree that cloud computing and data center consolidation will reduce agency IT budgets

As the shift demands clarification, outlining its benefits is a vital step, the report states. But IT managers also need to know where to begin in converting IT CapEx budget items to OpEx. The easier starting elements outlined by participants:

1. Network infrastructure (41 percent)
2. Data center infrastructure (35 percent)
3. COTS software (29 percent)
4. Network capacity (27 percent)
5. Custom software development (25 percent)

With these steps and benefits defined, “start with the low-hanging fruit,” the MeriTalk report advises. “Before reshaping everything, do what makes sense in the short-term.”

And now is the time to do this sort of apple picking, Brocade’s Robbins said, be that for federal health agencies or others.

“We are already seeing an increase in the number of IT managers considering a CapEx to OpExshift. Twenty-one percent of Federal IT managers are still unaware that it is a possibility," MeriTalk's O'Keeffe said. "Once they are aware, nearly half consider it. OpEx migration is just starting to take hold.”
 

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