Higher education cloud financial planning: A former CFO’s perspective

Moving a college’s or university’s on-premises IT infrastructure to the cloud involves a lot of change in organization, culture, and practice. Changes associated with IT staffing and skills, planning and deployment of IT resources and strategies, and modernizing applications and environments can be simply addressed before and during a cloud migration. However, in my experience as a former chief financial officer (CFO) in higher education, financial planning for cloud computing is often not attended to with as much diligence.

Now as an executive education advisor at Amazon Web Services (AWS), I leverage 30 years of higher education experience to work with education leaders around the world as they begin their digital transformation journeys with the cloud. Financial planning needs to be understood as a positive feature of digital transformation, even if it means changing how financial plans are developed and managed. In this blog post, I discuss strategies to consider when deciding to migrate to the cloud.

Frameworks for financial planning in higher education

AWS offers two rich frameworks for this kind of financial planning. The Cloud Value Framework from the Cloud Economics Center primarily focuses on premigration cost estimation and planning. The Cloud Financial Management Framework focuses on financial planning related to current and future usage of cloud resources. These two frameworks can be valuable for CFOs. I know from first-hand experience working without these frameworks that it can be a struggle to appropriately integrate cloud planning into broader institutional financial plans. To better understand that struggle, let’s explore how a CFO might approach the prospect of cloud computing.

On the surface, the value proposition associated with cloud migration—trading up-front hardware expenses and ongoing operation and maintenance of on-premises infrastructure for on-demand, pay-as-you-go cloud computing—seems like it would be very compelling to a CFO. Rather than paying for on-premises storage and compute infrastructure that must be configured and staffed for peak loads, cloud computing resources can be provisioned to provide only the needed levels of storage and compute for significantly less expense to the institution. What’s not for a CFO to like?

What many might not know is that the overall model for planning, implementing, and maintaining an appropriate cloud-based IT infrastructure sits in stark contrast to the model most higher education CFOs use to develop multiyear institutional financial plans. Understanding where these two models are different is key to understanding why it is so hard for many CFOs to adequately incorporate cloud computing into their overall financial plans, and why there can be blockers to ongoing conversations about cloud migration and digital transformation.

In a simplified map of the traditional model for developing multiyear institutional financial plans, there are two major components: 1) the operating financial plan projects the operating revenues and expenses of the institution, and 2) the capital plan projects the capital investments of the institution.

The operating financial plan tends to be very predictable, with most revenue and expense items being set using a very simple formula: “next year = this year ± a relatively small amount.”

The capital plan details multiple categories of major investments an institution might make. Many of these investments are funded by revenue sources such as major gifts and bond funding that are difficult to project accurately or are restricted for specific uses. By nature, many of the projects in the capital plan are complex and involve multiple contingencies. One exception to this is capital spending on IT equipment, which is generally predictable.

Migrating IT workloads and infrastructure to the cloud has two immediate impacts on an institution’s finances. First, it adds operating expense and creates a new category of operating expense. Second, it reduces the need for capital investments. From a cash-flow perspective, this is a good trade since capital investments for IT computing and infrastructure are significantly larger than the comparable operating costs of cloud computing.

Four financial considerations for cloud migration in higher education

Despite the benefits, these shifts introduce three challenges to CFOs in higher education. First, they reduce the amount that an institution reinvests in its capital assets, which might concern governing boards. Second, they are at odds with the implicit mandate to reduce operating expenses, particularly on expenses unrelated to student success or the student experience. Finally, budgeting for something that has a variable operating cost complicates the process of building annual budgets.

To help mitigate these concerns, I offer the following advice for CFOs and those who want to convince a CFO of the value of cloud migration:

Focus on the total cost of ownership of the on-premises environment relative to cloud computing. It is simple for finance leaders to focus on capital expenses, which sit in a separate budget, when thinking about the yearly cost of computing on premises compared to in the cloud. In truth, capital investments are only the tip of the iceberg. Expenses like server facility costs, including power and cooling, staffing costs, maintenance agreements, licenses, and depreciation, add up quickly and weigh in favor of cloud computing.

And don’t forget about costs outside of the IT department. On-premises computing and infrastructure requires staff to procure equipment, review and approve maintenance agreements, process payments, and maintain accurate equipment inventories. Moving to the cloud means that the cloud service provider is responsible for these activities, freeing up staff to perform other, more customer-facing duties.

Don’t limit the conversation to dollars and cents. While it may be tempting to think that CFOs only care about finances, they care a great deal about all aspects of the institutions they serve. Sustainability, agility, and security certainly matter to them. The business needs driving interest in cloud migration are almost certainly something they will support. It also helps to remember that many of the benefits of cloud computing not directly related to dollars and cents have a financial impact. Poor security, the inability to “turn off” unneeded computing and infrastructure investments, and supply-chain delays all have a cost.

Furthermore, in a sector where space is often a more precious resource than money, the ability to repurpose space formerly used for IT infrastructure can be an enormous benefit. In many cases, servers and switches eat up precious space in academic buildings and libraries—space that can be converted to functions that directly support student learning or faculty research. Even dedicated data center facilities can be repurposed for more mission-oriented purposes, or to relieve space crunches for critical campus facilities that may have relocated other nonessential uses of space to off-campus facilities.

Be aware of the relative availability of funding for capital investments and operating expenses. While not everyone needs to think like an accountant, awareness about an institution’s finances helps people understand the appetite for the shift in expenses related to cloud migration. Did the institution recently receive bond funding that might be restricted to certain uses? Does it regularly underspend its capital budget? Is it consistently reducing operating budgets? While a “yes” answer to any of these might make it harder to convince a CFO of the value of the cloud, having a general sense of these matters can make it simpler to engage the CFO around their concerns and work with them to find a way to make cloud finances work. Is it possible to capitalize part of the cloud migration? Are there alternative uses of capital funding, like energy efficiency upgrades or building modernization, that can reduce operating expenses, redirecting the savings to support cloud operations?

Make sure that the CFO and other key finance staff are part of the conversation, both before and after the cloud migration. One of the biggest changes needed in both culture and practice involves the working relationship between finance leaders and IT leaders. At many institutions, this relationship has a “set and forget” quality. Finance and IT develop a working relationship where they both get what they need from each other with a minimum of interaction, with the understanding that neither side should surprise the other. That won’t work for cloud computing because IT strategy directly impacts financial planning. Further, this impact can change over time as the institution’s use of cloud technologies broaden and deepen. Given the challenges that cloud computing poses for traditional financial planning in higher education, it only makes sense to involve the CFO and other key finance staff in initial conversations about cloud migration.

Cloud computing has become the choice for provisioning IT resources in the for-profit sector for a good reason. The benefits of cloud computing far outweigh the costs, especially when one factors in the resiliency and agility of digital transformation. While higher education has not responded to this opportunity as quickly as other sectors, an informed approach to engaging higher education finance leaders can help move this sector toward cloud computing.

For more guidance on transforming your business through cloud financial management with AWS, please contact us.

Learn more about how higher education institutions around the world use AWS to support teaching and learning, connect the campus community, make data-driven decisions to save money and resources, and accelerate research efforts at the AWS for higher education hub.

Read more about AWS for higher education:

• The top 3 innovation drivers in higher education in 2023
• 3 ways AppStream 2.0 transforms the CTE and STEM experience in schools
• How advanced analytics can improve efficiency and provide important student insights at higher education institutions
• Leveraging data to future-proof higher education
• How colleges and universities can benefit from a cloud data strategy

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