 Hi, rhai am y Lluweus Waine. Rwy'n gwrthod ddechrau'r cyfgareddau mewn cyfagor iawn ar gyfer teis y technol. Dydai, rydyn ni'n gwneud y cyfagor, yn ysgolio'r cyfagorau cyfagor a'r cyfagorau cyfagorau cyfagorau cyfagorau cyfagor. So, fel y cyfagor, rydych yn fawr i gydag llyfr o gydag llyfr, gyfagorau gyfagor, Capp extraf hexshift, toticost of ownership, optimisation in the cloud, licencing considerations, the value proposition, and all of this will support the business case for public cloud. The intended audience are finance and IT professionals who are involved with compiling the business case for cloud. So let's start with some background about public cloud. Cloud computing is the on-demand delivery of IT resources and applications via the internet with pay-as-you-go pricing. So some public sector background, the government introduced a cloud first policy back in 2013, and with cloud first what they mean is public cloud. In 2017 the approach turned to being cloud native so software as a service models were encouraged. Also in 2017 the blue light services were given the green light to move to public cloud. And what we're seeing is that cloud is now mainstream in private sector and there's increasing adoption in public and third sectors. So in public cloud market there's three main players, Amazon web services known as AWS, they were there first and they've got the greatest market share. There's also Microsoft Azure and Google Cloud. All of these offer superior technology so you're running your systems on the same world-class infrastructure as global corporations, they're highly secure. The cloud provider is responsible for the security of the cloud whereas the customer is responsible for the security of what they put in the cloud. These systems are reliable, scalable and offer high performance. There's global reach and cost optimization. There's flexible pricing categories and support. But using public cloud isn't just about the technology. It's enabling organisations to be better positioned to achieve their objectives. You're able to quickly deploy new applications instantly scale up and down. So it increases your speed and agility. You benefit from the pace of innovation. So experimentation is easy to do at little cost allowing businesses to change course quickly. So you can treat it as temporary and disposable which is something you wouldn't consider doing when investing in your own infrastructure. The cloud economics, there's two main primary cost drivers. So you benefit from lower unit costs and this is the result of the major public cloud providers having increased scale, the latest technology, best practices, improved operational efficiency. And it's a competitive market. They're all out there to try to win your business. The second cloud economic advantage is from significant drop in capacity hoarding. So when you're running your own data centre, the average rack runs at 75% capacity to allow for scalability. So the other 25% is wasted and often it's more than 25% that's wasted. In public cloud you match cost with usage. So you just pay for what you use. Here's an example. So if this was running in your own data centre, you would run at the capacity of the orange line to allow for the peaks. And you would be investing based on estimated demand. Whereas in public cloud, if you were only to use your infrastructure at 8am to 8pm, Monday to Friday, that's less than 40% of the full week. So you would benefit from turning it off. You can elastically respond to loads in an agile manner. Now what this means is that there's tools available to help you auto scale. So you're adjusting capacity as needed based on configuration and auto scaling policies that you can set up within the cloud environments. So that's a really high level view of what cloud is. Now the main purpose of the webinar is to talk about the accounting implications for public cloud. We often hear that the finances and accounting concepts around moving to public cloud can be a blocker. It's a huge lack of understanding. And what we want to do in this webinar is increase people's understanding both within IT and finance of the accounting implications of moving to public cloud. So let's start with some background about what is CAPEX and what is OPEX. So CAPEX, this is capital expenditure. This is usually where you're buying an asset that's going to last over a year and has a significant value. So organisations have different policies on what level the CAPEX threshold would be. Many organisations, it's if you're buying something that's over £5,000 with the useful life of over a year. And what you do is you put the cost of the balance sheet and then you spread the cost across the assets lifetime as depreciation. So you see that in the profit and loss account as depreciation over the assets life. Some examples on premise, this would be the hardware, storage, networking, software licensing and implementation costs. So there's a lot of CAPEX involved with on premise. Within public cloud, there's a shift from CAPEX to OPEX. There really isn't much CAPEX. Operating expenses known as OPEX. These are the ongoing costs of running your business and the cost is recognised in the month, the benefit is received. So on premise, this is the annual support and maintenance, power and cooling of your data centre, facilities costs and staff costs. Within public cloud, this will be the infrastructure, the cloud services, software licenses, because all of these are on a consumption basis. You pay monthly for what you use and the staff costs. SAS, so software as a service within public cloud, this is also treated as OPEX because it's treated as a service contract due to its rolling nature, auto upgrades and the responsibility. Then there's cash flow, so the cash in and out of a business. On premise, this is spiky due to the unpredictable nature of hardware purchases, often as a result of something breaking down or a forecast peak in capacity and there's annual licences. Within public cloud, it's much steadier. You're paying monthly based on consumption. So what is the appeal of CAPEX? We often hear that it's easier for companies to spend CAPEX than it is OPEX. Well, this will be because you're spreading the cost of CAPEX over the lifetime of the asset rather than in the one financial year that you're in, which is where you would see OPEX. Also, when you're purchasing CAPEX, you're adding to the value of the company, you're adding an asset to the balance sheets. Let's see what that would look like on profit and loss accounts. It's an accounting recap. So you'd have net income and you see the costs, so some IT costs, other costs, which would be staff costs, facilities costs, marketing costs, et cetera, to give total OPEX. So net income, take away total OPEX, gives you EBITDA. You may not have heard of EBITDA, it depends what industry you work in. So EBITDA stands for Earnings Before Interest, Tax, Depreciation and Amortisation. It's a key profitability measure, it's also known as operating profit or loss, because this measure is deemed to represent the ongoing trading activities of an organisation and whether it's therefore profitable. You'll notice this is before depreciation. We then take away depreciation to arrive at EBIT, which is earnings before interest and tax. So what you notice is when you're spending OPEX, it does impact your operating profit. When you're purchasing assets that are then depreciated, the depreciation features after operating profit. So accounting for cloud, let's put some figures in. This is a really, really basic model, looking at the shift from on-premise to cloud. So keeping everything simple, we're just increasing IT costs by 100, and this is because of the consumption model within public cloud. We'll keep other costs the same. So therefore your total OPEX is going up by 100, and that means that your EBITDA, your operating profit, is going down by 100. And as we said before, this is because when you purchase cloud, you're increasing your IT costs, but you're decreasing your depreciation because you won't have so many assets depreciating. So that goes down, and therefore your EBIT stays the same. So EBITDA, EBIT, does it really matter if you're spending OPEX or OPEX? Well, in some industries, like they said, it's easier to spend OPEX, and also in some industries and countries, for example, in the USA and in large PLCs. So there's a huge focus on the EBITDA measure because it represents the ongoing profitability of an organisation based on its trading activities. So analysts and investors use EBITDA to measure the trading performance and remuneration schemes, so bonuses are often linked to this. So we need to ensure that this doesn't lead to any inappropriate procurement behaviour. We can do this by communicating the CAPEX-TOPEX shift and remembering that cash is key. All finance teams would rather have steady cash flow as opposed to these spiky peaks that are involved with on-premise. So let's look at some real accounting for cloud specifics. We often hear that there's some confusion around how to treat reserved instances. A reserved instance is where you commit to purchasing from a cloud provider for one to three years, and as a result, you get a discount. These are treated differently by the different cloud providers, but basically you would receive an invoice upfront for the period you're committing to, so say three years. This cannot be capitalised because it isn't an asset. You're not purchasing the underlying infrastructure, but what you want to do is match the benefit and the cost. So you'll put the invoice to the balance sheet and then release it monthly over the period of the reserved instance, but you'll release it back to IT costs on the profit and loss account. So this means you're treating it as a prepayment. You're not treating it as an asset that you're capitalising. Dedicated hosting. This is where you are dedicated a set part of public cloud, but again, you're not owning the underlying infrastructure, so you cannot capitalise it. So consultancy, project management and training costs relating to cloud migration again cannot be capitalised. It isn't attributable to acquiring or constructing an asset. So here's some tests. So is it attributable to acquiring or constructing an asset? An asset must be owned and be able to be turned into cash. Also, there's some accounting policies around software and how that must be treated and there's some tests, sir. Now this is a complex subject, so for more information speak to your accountants. So the accountancy bodies are talking about making some changes to accounting for leases and there's IFRS 16 coming in January 2019, but from what I've seen, that won't change these fundamental things about accounting for cloud. But again, watch this space and speak to your accountants for more information. So that wraps up the accounting for cloud. Next we're going to be looking at total cost of ownership, licence considerations and optimising within the cloud. So total cost of ownership. This is a method that identifies the solution that provides the higher value over time. It looks at how organisations can change the way they do business. It's often done for a three to five year time frame and the benefits increase over time due to the learning curve, innovation and optimisation. So let's look at some of the components. You compare on-premise and co-lication with public cloud. On-premise you've got the operational costs and acquisition costs, whereas in public cloud the storage and compute and data transfer out. So with on-premise it's important that you include the cost of servers, storage, networking, IT staff, power and cooling and facilities. And this is probably easier than it really is to achieve. We're often hearing from our customers here at Edgyserv that it's difficult for them to identify the costs of what it's costing them to run their on-premise servers now. And what are the IT staff costs relating to that? What would it look like in the future? It's really worth trying to identify these costs because you'll never know what you're going to save in the future if you don't know what your costs are today. And then within public cloud there's some optional extras. So you could use a managed services provider, that's what Edgyserv is, and that comes with benefits of having a main point of contact, billing flexibility, other related services and products. This is migration costs because these are the one-off costs of migrating to public cloud. So it would be an internal project team. So migrating to public cloud isn't business as usual. You will need a project team. This is the cost to consider. So would you use an outsourced partner with the migration expertise? And then there's tooling. So there's paid for tooling and there's free tooling offered by the cloud vendor. Again, this will depend on the applications you're moving to cloud. Some will be easier and you can use the free tools. Others may be more critical and therefore require paid for tooling. Then once your infrastructure is decommissioned, your finance team will need to write off the net but value with redundant assets. So what does that mean in English? What that means is if you've purchased some storage, say one year ago, but you expected it to last three years, you will have depreciated one year, but you'll have two years left on the balance sheet. So that will need writing off because it's not going to be part of running your business in the future. Migrating to public cloud is just the first step in the journey. There will be further savings to be made once you're in the cloud. And these will come from rightsizing, storage optimization, serverless architecture, other optimization methods, and the cloud service models, which I'll talk about later. And cost optimization is achieved through a continuous cycle. So ongoing monitoring, measuring, and optimizing. Ongoing monitoring, measuring, and optimizing. This needs to be continuous. So what do we mean by cloud service models? This next slide shows the shift from on-premise right through to software as a service. You can see the orange blocks are the things that you manage and the pink ones are things the vendor manages. And as you move through this, the vendor manages more. Allowing you to focus on your core activities. Something else to include in the business case is license considerations. So I'll just give a very high level overview of this. So there's several options. So the simplest is licensing included within public cloud. I say this is a simplest because you can purchase it within seconds like you can any of the servers within public cloud. So you select your license, windows, Linux, et cetera. And then the public cloud provider manages all the license compliance. It's a pay-as-you-go model with no upfront costs or commitment. So you benefit from turning it off. It's a consumption-based model. So like I said earlier, if you're only running your infrastructure 8 a.m. till 8 p.m. Monday to Friday, that's less than 40% of the week. Whereas on-premise, you'll be paying for your licenses 100% even if your servers aren't in use. There's license mobility. So this varies between public cloud provider and software assurance is required. It's available with certain licenses. But what this could do is you could benefit from any existing license that you've got for your on-premise software. And then there's bring-your-own licenses which is available on certain cloud environments and there's no need for software assurance. Now, I must stress this is very complex and it varies between cloud provider. So seek guidance. So finally, we're going to look at the value proposition and some key takeaways. So a business case should highlight that it's difficult to compare like with like as the past and the future won't be that comparable and the business benefits are often non-financial. Therefore, it's important that the value proposition is understood. Businesses will no longer have to manage their own infrastructure. Instead, they can build sophisticated scalable applications and have resources to run any workload from a platform that offers extensive services, features and geographical locations. So it's about the business outcomes. You're better positioned to achieve organisational objectives, enabling innovation and increasing agility. And this is through platform breadth, global reach. Superior reliability. High performance. Sustainable and scalable IT. Favourable economics. Operational efficiency. Improved agility and pace of innovation. And what this leads to is a focus on your core organisational activities rather than running your infrastructure. Experimentation is easy to do at little cost. Allowing customers to test and fail quickly at a low cost. So really the risk of not moving to cloud is the opportunity cost to the organisation resulting from lack of speed and agility. So what does this mean for IT leaders? So we need to communicate the strategy to help explain the shift from CAPEX to OPEX. I mean to raise the financial implications or raise the understanding of the financial implications across the business to ensure that the right investment decisions are made. So always be led by what is best for the organisation. And encourage closer working between finance and IT, which is something that we are seeing now in the markets. So some key takeaways. Public cloud is increasingly the norm. There's the move from CAPEX to OPEX and this requires some robust business modelling. It's good to have the awareness of EBIT and EBITDA, those profitability measures that we mentioned, and how the CAPEX to OPEX shift impacts them. And also be aware that TCO and the cost journey, so you never know what you could save if you don't know what you're spending already. And to understand that migrating to cloud is just the first step. And the full value proposition should really be understood because it's about the business outcomes, not just the technology and the money. It's important to involve finance from the outset on all your business cases. And external consultancy is available, which is a great segue into what does EDGE serve do? So here at EDGE serve, we help to cloud migration and management, cloud application and development, and cloud optimisation. And we work with AWS Azure, Microsoft. So EDGE serve also conduct research and provide learning opportunities both independently and with partners, for example Socketim, CFG, and SIPFA, the accountancy bodies. And we do webinars like this. So stay tuned for more. Thank you for listening.