In our previous cloud economics post, we explored the bigger picture of cloud economics, taking into account the value of agility and other soft costs that are often not considered in traditional CapEx vs. OpEx discussions. In this article, we uncover the best strategies for the financial monitoring of cloud services, which is becoming increasingly important in today’s enterprises.
After years of chaotically distributed IT services, control is now moving back into the hands of central IT. With the introduction of cloud-based services, establishing a business unit to monitor usage, control costs and focus on the needs of key stakeholders will become standard practice.
We are seeing enterprise IT regain control of existing public cloud-based resource usage within departments, and of managing the roll-out of new cloud projects. This means IT now faces a rising level of complexity and the need for cost controls. However, with greater control comes greater responsibility. Proven processes and technologies are emerging that will give IT more visibility into costs, including core analytics to determine the existing and future value of cloud and non-cloud systems.
With the agility provided by cloud, the pressure is on IT to stand up end-to-end environments in a matter of minutes – not weeks or months. But how does management avoid overextending capital budgets and know that they won’t be stretched thin down the road?
IT is under constant pressure to drive costs out of systems, but without an automated application and clear insights, IT is simply driving blind.
Enter a built-for-purpose software solution that gives IT the ability to see exactly which services are being consumed and by whom. Visibility and control over critical IT assets results in better delivery of the right services at the right time, cost effectively. Indeed, with a bit of planning and selection of the right technology set, IT will be able to understand the current cost consumption picture, as well as past and future consumption patterns. IT can also place limits on the use of IT services, in terms of cost, to prevent cost overruns well before they impact the business.
In this article we explore the evolution of IT, with an emphasis on controlling cloud services as they shift back to enterprise IT. We’ll also explore how this control comes with a price, in terms of the added complexity and lack of visibility into consumption costs, and show the business value these IT services can provide.
The conclusions reached in this paper include:
- Control of IT and cloud services is moving back into centralized enterprise IT.
- There is a need to monitor consumption of IT and cloud services, in terms of costs and business value, given the increasing complexity and need for cost and budget controls.
- The rise of cloud computing makes this problem more complex, so cloud and non-cloud assets should be managed using a single consumption monitoring structure.
- Enterprises should begin planning now for consumption monitoring and financial analytics systems, moving from their requirements to the right technologies for both areas.
The Value Shift for Enterprise IT, CIOs & Operations Teams
Since the emergence of cloud computing in 2008, we’ve seen a shift, and then a reshift, in IT’s roles and responsibilities. The shift occurred as cloud computing rose in popularity and departments began to build and deploy their own IT solutions, typically leveraging public cloud-based technologies, including Amazon Web Services (AWS), Google and Salesforce.com, to name just a few.
A 2013 study conducted for McAfee by Stratecast, a unit of Frost & Sullivan, surveyed 300 IT workers and 300 line-of-business personnel at enterprises in the US, UK, Australia and New Zealand. The study found that 80 percent of both groups admit to using SaaS apps at work without IT’s approval. Despite the fact that many of these people are aware they’re circumventing IT approval processes and introducing potential risks, they feel that the business value outweighs any concerns. This type of usage became known as “Shadow IT.”
Solving Shadow IT
The Shadow IT movement decentralized IT assets in many companies, and greatly diluted IT’s ownership of all IT resources in the enterprise. This led to inadequate security, governance and cost controls. As these risks became more apparent, business leadership saw the need to return control of all IT services to enterprise IT.
As depicted in Figure 1, control is now shifting back to central IT from something that was best described as “chaotic” in most enterprises. All systems, cloud and non-cloud, will be placed under IT’s direct control. In many instances, IT had no say in or control over how these systems were built, deployed and managed, so it’s not surprising that such systems rarely employ standardized technology, often lack security, and governance (such as cost monitoring and control) is typically sketchy, at best.
The Fall of Shadow IT — Good News, Bad News
The good news is that centralized control means fewer issues with the operations of IT solutions, and thus more value is brought back to the business. Moreover, there’s the opportunity to provide better governance and cost management, with the ability to monitor all IT assets, including traditional systems, as well as private, public and hybrid clouds that are under IT’s direct control.
The bad news is that IT must understand what the new responsibilities mean in terms of management approaches. Having more systems to manage increases complexity and creates the need for automated tools and processes to provide the right level of monitoring and management. This means overseeing operations to maximize uptime and costs, and even keeping an eye on the value that core IT systems return to the business.
Despite the fact that there is more work to do, this is an opportunity for IT to establish best practices, including the use of emerging automated tools for monitoring resource usage and costs. Using this cost data in the context of advanced analytics can determine clear trends, allowing IT leadership to correct negative trends before there is a real business impact, as well as to understand the true value of IT as a tactical and strategic business asset.
A 2014 survey by Gigaom discovered that governance and financial control of cloud usage is on the radar of IT leaders (see Figure 2 below). This was barely a blip on their priority screens just a few years ago.
Shift in Ownership of IT Services Delivery
Clearly, there is a shift in ownership of the delivery of of IT services. While it was once chaotic and somewhat distributed, today we are moving back to centralized control and oversight (see Figure 3). We know the reasons for this shift. Now it’s time to focus on what IT will need to deal with in the near future, and how to solve emerging issues around the financial management of IT services.
For most enterprises, this shift is an opportunity to correct the issues around management and governance that currently exist, and may have existed for years. This is certainly a good idea. However, specific things are happening right now that are forcing IT to figure out these issues without delay. The most notable trends are:
The placement of all IT assets back into the hands of central enterprise IT. At CTP, we recommend implementing a Cloud Business Office (CBO), which serves as the central point of decision-making and communication for your cloud program — both internal and external to your company — and is responsible for the operations of these assets, including their cost efficiencies. A CBO is critical, considering that the business needs to understand and track the value of the cloud assets in operations. Thus, the CBO largely deals with financial metrics, or key indicators, that show that both the migration to and the value of cloud is being delivered to the business. Moreover, the CBO makes the adjustments needed to get things back on track, such as placing more resources in one area and removing them from others, in order to access more value. These adjustments are based on the real time financial data that the CBO is able to monitor.
- The rising complexity of enterprise architectures, typically around the use of public and private cloud-based resources.
- The rising complexity of costs, inherent in managing a mix of traditional systems, which are CapEx heavy, as well as newer public cloud-based systems that are OpEx heavy.
- The emerging need to gather and analyze cost data. This includes real time monitoring, analytics to uncover spending patterns, and predictive analytics to identify future trends that will help support planning and strategy.
- The emerging need to set limits on spending, both during operations (such as limiting the number of virtual servers provisioned by a single user), as well as governing who can leverage which resources, and for what purposes.
The shift in ownership comes with some risk and cost. Centralized IT and the CBO are becoming the IT service brokers for the entire enterprise, and thus must take control of all management aspects of those resources. Those who understand the impact of taking on this responsibility also know that present procedures for cost monitoring and control have to change. New approaches need to be created, and automated tools leveraged. Now is the time for IT to prepare for these fundamental shifts.
The Importance of Tracking Value
The fundamental trends listed in the previous section are a clear call to action for IT. It is time to put in place the financial management systems and best practices for cost governance, management and analysis.
Unfortunately, few in IT have a handle on the financial controls that should be in place to insure that the existing IT investment is returning value to the business. As control moves back into the hands of centralized IT and the CBO, solving this problem should be a top priority.
Considering the problem of increasing complexity and centralization, it’s clear that IT has to address a few core issues. IT must:
- Better Understand Who Is Consuming IT Services–Complex services are difficult to measure, in terms of resource usage and costs. However, they are an integral part of IT solutions, including cloud-based systems. What makes these services complex are their granularity, and how they interact with other services, including any dependencies. Enterprises need to understand who’s consuming the services, as well as how costs track down to the resources they actually bind to those services. For example, an application may invoke a few APIs for storage services that actually involve aspects of AWS, Microsoft and private cloud resources. IT needs to understand how all these things interact, in order to understand the true cost metrics.
- Embrace Automation — The tipping point to manually managing resources is long past. This means that the number of services enterprises manage has reached a point where use-based accounting and consumption monitoring using manual processes no longer work.
- Track Consumption–The lack of usage tracking gives IT little visibility into past usage of resources, cost information and future trends that need to be proactively addressed. Enterprise system managers receive no deep understanding about where resources are consumed, or by whom, or how much this costs the enterprise. Such information should be delivered using financial analytical services that are tightly coupled to consumption tracking.
So, how do you get started? It’s a matter of understanding the ideas we’ve presented in this article and taking them to heart. Using the Cloud Business Office concept is perhaps the best approach, given that levering internal and external cloud services will be an ongoing effort. However, there needs to be a holistic understanding as to what the value of cloud computing really is, and how to track the value creation process when your cloud environments are operational.
The operational-oriented approach to cloud economics, using a Cloud Business Office, as well as automated monitoring tools, is very different from just coming up with a business case at the onset of your cloud initiative. In doing so, you’ll have the greatest opportunity to create value using this emerging technology — and, ultimately, that’s the name of the game.