Traditionally, most IT departments and engineering consultants wanted to own the CFD technology they use. Today, business owners want to shift more of these IT costs from the capital expenditure (CapEx) to the operational expense (OpEx) budget, and while this sounds straightforward, it proves much more than a simple adjustment in accounting.
Shifting software purchases to procurement has been difficult in the Computational Fluid Dynamics industry due to the nature of how vendors sell their products. Most commercial vendors require that when you purchase a license, the annual fee is paid upfront. Moreover, when you're a newer business, it can be difficult to qualify for compute hardware financing. Changes in CFD software business models and CFD software platforms are alleviating this transition.
Learn more about CFD in our Essential Guide to CFD Simulations.
A Changing Landscape
Advances in technology have presented companies and consultants with a wealth of IT confguration options. These options include outsourcing, leasing, and of course, Software as a Service (SaaS), all enabling a consultant or organization to avoid ownership of technology and move things into their OpEx budget.
IT expenses become closer aligned with customer demand, which helps business owners better manage cash flow and grow the business without requiring the raise money or borrow funds.
Envenio, like many software providers, has exploited this trend to provide the engineering community with high performance affordable CFD software on the cloud, with a pay-as-you-go pricing model. Such a move prevents the need for costly investment, and enables more consultants and organizations to work effectively without annual licensing costs. In addition, there are options to outsource a project using initiatives such as the Discovery Project - click below.
CapEx to OpEx: Benefits For The Budget Owner
Capital expenses (CapEx) are for assets with a useful life greater than one year. Operating expenses (OpEx) are incurred in the ordinary course of running the business on a monthly or yearly basis.
So why does the shift of CFD software from CapEx to OpEx even matter? Well, companies want to preserve cash, and CapEx requires investment upfront. OpEx allows a user to pay on a monthly or annual basis, providing financial flexibility. If a consulting company procures a large CFD compute cluster and doe not end up securing customer contracts, they're left with under utilized hardware.
For example, instead of making an upfront investment based on peak capacity for physical server infrastructure, customers can leverage CFD software like EXN/Aero to match capacity to need, as well as pay as they go (monthly) for only the services that they use. If a month goes by where there isn't any CFD activity, the company is only covering the cost of the monthly subscription ($250).
By weaving longer term IT costs into an annual OpEx budget, they become financially positioned alongside core costs of sales, enabling IT to be viewed as an essential cost for doing business, rather than a round of investment. A consulting pipeline can change on a whim, and businesses need to be prepared to accomodate this demand.
If an opportunity arises that requires double the compute capacity, it could be 4-6 weeks waiting for pricing, negotiations, shipment, installation, and provisioning of hardware. With an on-demand cloud tool like EXN/Aero (or others like Simscale, Ubercloud), you can activate resources within minutes of winning a contract.
Fig. 1 - A holistic cloud economics evaluation highlighting both hard and soft savings. (Cloud Technology Partners)
CapEx to OpEx: Benefits For The CFD Engineer
In addition to benefiting budget owners, transferring IT services such as CFD cloud computing to the OpEx budget can have advantages for the individual user.
Pitching: When it comes to securing new clients, having the flexibility to make use of the very latest compute hardware and software, enables a consultant or organization to create a leading pitch with minimal expense. This proves hugely advantageous over those companies who have invested into technology or software that becomes outdated or is not flexible to different client needs. Many CFD engineers have used EXN/Aero on-demand to prepare marketing materials to kickstart their consulting business or to help them win jobs. One example is a customer using EXN/Aero to prepare an LES case for a project bid, where their competitors could only afford RANS models.
Flexibility: By choosing rental options, engineering consultants and organizations enjoy a greater level of flexibility, able to adjust quickly to client needs and keep up with industry changes. This is particularly useful for engineering consultants or smaller businesses who must remain competitive against larger rivals. Examples of this include offering higher resolution simulations, higher fidelity runs, upselling existing clients with larger models, and bidding on much larger sized jobs. Further examples about how on-demand HPC cloud CFD can help you grow and compete are here.
Fig. 2 - At-a-glance comparison of OpEx and CapEx showing financial, accounting and arrangement comparisons.
On-Demand CFD and the Shift to OpEx
On-demand cloud tools enable users to rent enterprise grade computing resources to opreate high performance simulation tools. The combination of on-demand resources and high performance software helps with scalability, speed to market, and as a way of avoiding capital outlay. All very important factors for small and medium sized businesses.
In summary, this means trading larger, one-time fixed costs with smaller incremental ones. CFD tools such as EXN/Aero slot into an OpEx budget in a similar way to a utility bill.
While a company or individual doesn't own the capital assets, the service can be turned off at any point, flexibility is maintained, and overall risk of failure is greatly reduced. This is surely set to change the face of HPC and in particular CFD software. The future of CFD in the cloud, and on-demand, is certainly bright. To get a sense of EXN/Aero, sign up for a free trial where one of our engineers will personally give you a guided tour and show you how our platform works.