Implementing modern technology in public administration was supposed to be a recipe for ossified structures and inefficiency. Meanwhile, according to a recent Capgemini Research Institute report, digital transformation is beginning to resemble a financial trap. Encouraged by the promise of flexibility, the public sector is falling into a ‘cloud first, cost second’ model that is becoming increasingly difficult to keep within budgetary constraints.
The scale of the problem is powerful. Currently, public organisations allocate nearly 30% of their technology spend to cloud services, SaaS and generative artificial intelligence. However, forecasts are even more alarming, with this figure set to rise to 44% by 2026. Despite this huge outlay, as many as 67% of leaders admit that they are unable to accurately forecast cloud spending. What was supposed to be a predictable subscription is becoming a financial ‘black hole’ for many offices.
The reason for this is not only a lack of internal optimisation, but also the aggressive policies of software providers. The SaaS market is facing a new phenomenon – ‘shrinkflation’. Technology giants such as Google are not only raising prices (in the case of Google Workspace, by up to 20%), but often reducing the functionality of existing plans, forcing customers to move to higher, more expensive packages. Combined with inflation and increasing demand for infrastructure under AI, the public sector is up against the wall.
The problem is compounded by a lack of discipline in managing ‘on-demand’ resources. As many as 68% of respondents see the waste of cloud resources as a critical challenge. Every unnecessary query to the AI model, every forgotten but still active subscription or unused server instance is real money leaking out of public coffers. While the private sector is quicker to adopt Cloud FinOps tools to manage costs, public administrations are still learning that the cloud is not a free resource.
“As many as 61% of public sector respondents describe the cost of on-demand technology as a financial black hole.”
The conclusions are clear: carefree subscription buying is coming to an end. To ensure that modern services, from AI chatbots to remote working platforms, do not ruin public finances, governments must move from a cloud-first to a cloud-smart strategy. Without rigorous cost controls and audits of the use of their licences, modern administration will remain just an expensive gadget that taxpayers can no longer afford.
The coming years will be a test for IT directors in the public sector. The challenge will no longer be digitisation per se, but its cost-effectiveness
