Every Infrastructure Decision Is a Capital Allocation Decision

Key takeaways

• Technology leaders often focus infrastructure planning too narrowly on new systems.  
• Organizations should adopt a broader perspective for infrastructure planning, assessing the full value that capital allocations can deliver.  
• Colocation simplifies capital allocation decisions by eliminating the need to invest in facility upgrades.  

IT infrastructure planning often begins with questions that focus on the technology. Leaders ask, Can our current infrastructure support AI initiatives? How much compute capacity do we need? Is it time to refresh our storage environment? Which workloads should we move to the cloud?  

Clearly, any infrastructure planning should have a strong technology component. Technology leaders need to identify changes that will better support business goals. But too often, leaders push financial decisions to the end of their planning process. They determine what they need and then try to figure out what they can—or can’t—afford.   

Reframing planning decisions could help technology leaders avoid the struggle of harmonizing their technology wish list and available budget. At the same time, it would enable them to better align with overarching business objectives.  

That reframing should center on capital allocation. Technology leaders should remember that every infrastructure investment is ultimately a capital allocation decision. 

Whether the IT team needs to purchase new systems, expand the server room, upgrade power and cooling, or otherwise modernize the IT environment, technology leaders should pause and ask: Does this investment represent the best use of our organization’s financial resources? 
 
Answering that question might require asking a few more. For example, How can this spending deliver a return on our investment? What would be the opportunity cost of standing still? 

Gradually Broadening the View 

Every executive team operates with finite resources. Capital invested in one initiative is capital that cannot be invested somewhere else. Finance leaders are continuously reminded of this bigger picture. But technology leaders are often used to taking a narrower view, focusing on the necessity of a particular system or infrastructure change rather than the implications for other teams or the entire organization.  

For many technology leaders, the first step in broadening the typical view is to consider the financial implications of each decision within their own team. For example, every dollar allocated toward facility upgrades—like new server racks, or additional power and cooling—is a dollar the team cannot invest in cybersecurity or AI tools.  
 
From there, they can broaden the view further. How will a server room expansion affect our company’s ability to accelerate product innovation or complete strategic acquisitions?  

Some form of capital allocation for infrastructure might still be necessary. After all, accelerating product innovation or supporting a strategic acquisition might require more IT resources. But placing the decision in a larger business context is important. Technology leaders, working together with their peers in other parts of the business, might decide that purchasing new data center technology might not be the highest-value use of available capital.  

Looking Beyond the Initial Investment 

Part of this new, broader evaluation of capital allocation should include a more thorough assessment of actual costs. The purchase price of new servers, for example, is just part of the overall investment. Even beyond the software licensing and deployment costs, there are often additional expenses. When a team decides to buy new servers, they might also need new server racks, new AC units, enhanced physical security, and new maintenance contracts.  

Not all of these costs are one-time expenditures. Maintenance contracts need to be renewed. And of course, new AC units consume power, which organizations must continue to pay for as long as those units are in operation.  
 
Just as teams should evaluate the full costs of new purchases, they should also consider the full value that those purchases can deliver. An IT team might buy new servers today to support a particular workload. But what is the true value of that workload to the company? Let’s say the company is implementing a new, internal AI tool that could dramatically improve the efficiency of previously manual tasks. Capital allocation for servers—even if it requires a host of other expenditures—might be well worth the price.  

Assessing the Cost of Standing Still 

A common assumption in infrastructure planning is that maintaining the status quo is the lowest-risk—and lowest-cost—option. If a team decides against buying those new servers, they will not incur any of the costs associated with their purchase and can simply continue with business as usual, or so the theory goes.  

In reality, the lack of action might result in some very real, tangible costs. One organization might not invest in new IT infrastructure; if its primary competitor moves forward with the investment, that competitor might gain an advantage that results in lost sales for the company sticking with the status quo.  
 
And what if an organization decides against any data center upgrades—like those added costs that don’t seem to deliver direct value to the business? Those decisions can come back to haunt IT teams. Failing to upgrade aging power and cooling systems, for example, can have disastrous consequences that quickly erase gains produced by new servers.  
 
Sometimes teams decide to allocate a little capital to facilities, but the allocation is inadequate. A team might plan only for the next two years. But what happens in year three, when the business needs to expand its IT resources again? Failure to plan for future scaling can amplify costs in the future.  

Adding Value While Controlling Costs with Colocation 

Technology leaders, then, have a lot to consider, including the business trade-offs of allocating capital for technology, the additional expenses that can accompany initial investments, and the opportunity costs of inactivity. How can they move forward with supporting tech-driven initiatives while keeping capital costs to a minimum?  
 
For some organizations, the cloud offers the right path. By moving workloads to the cloud, organizations can trade capital expenditures for operational ones. Still, not all workloads belong in the cloud. Organizations might have several workloads with performance, security, or compliance requirements that demand dedicated hardware.  
 
Colocation provides an important middle ground between public clouds and on-premises server rooms. Purpose-built colocation facilities can offer resilient power, advanced cooling, physical security, compliance, and carrier-neutral connectivity. Organizations retain ownership and control over their hardware. By using that dedicated hardware within colocation facilities, organizations can meet workload requirements while avoiding capital expenditures related to facility upgrades and ongoing maintenance. When it’s time to scale, they can do so without large capital outlays. 
 
With a colocation model, technology leaders can simplify that increasingly complex infrastructure planning. They can focus on the value that technology will deliver and continue to assess the trade-offs that investments entail while removing capital allocation for facility upgrades from the equation. 

Moving Forward with a New Perspective 

The most effective organizations don’t evaluate infrastructure as a collection of technology purchases. They evaluate it as part of a larger business investment strategy. 

Infrastructure should support innovation, accelerate growth, strengthen resilience, and enable a business to adapt as markets evolve. Infrastructure should not become a long-term consumer of capital that requires deep sacrifices from other parts of the business. 

As your technology team moves forward with infrastructure planning, adopting a broader perspective will better serve the business. Instead of starting with the specs of next-generation systems, ask which investments will be the best use of capital. You might find that selecting a colocation model can help free up capital for investments that have a large-scale impact on your business.   
 
Explore ways you can take facility costs out of the capital allocation equation. 

FAQS

Q: What is the problem with current IT infrastructure planning? 
A: Technology leaders often focus too narrowly on what new technologies they should implement. They don’t consider larger implications of their decisions, such as how any IT capital expenditure will restrict the capital budget for other parts of the business. 

Q: How should technology leaders reframe their infrastructure decisions? 
A: Technology leaders should see infrastructure decisions as capital allocation decisions. For each decision, they should assess the full costs of new expenditures and then determine whether the new investment is the best use of their organization’s financial resources.

Q: How does colocation simplify IT infrastructure planning? 
A: Colocation facilities enable organizations to retain ownership and control over their hardware while eliminating the capital costs of facility upgrades. Leaders can continue to make value-based capital allocation decisions without having to factor in the short- and long-term capital costs related to facilities.