Gain Clar i ty & Cost Control when Del iver ing IT Serv ices to the Business

A WHITE PAPER BY DAVID S. L INTHICUM

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Executive Summary 3

Value Shift for Enterprise IT - CIO and Operations Teams 4

Shadow IT – Good News…Bad News 4

The Rise of the Cloud Service Provider 5

Shift in Ownership of IT Services Delivery 6

Management & Focus on Value Management 8

Real-time Reports & Analytics Bring Clarity & Drive Decisions 9

How to Deliver ITaaS to the Business, For the Business 11

Leveraging the Right Tools 12

Changing Responsibilities and Future Directions 14

About the Author 15

Contents

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After years of chaotic IT services distribution through “shadow IT,” control is moving back into the hands

of central IT. Enterprise IT will continue to regain control of existing public cloud resource usage within

departments, and take on the roll-out of new cloud projects. However, with greater control comes greater

responsibility. IT now faces a rising level of complexity and increasing pressure to control costs.

New approaches and technologies have emerged that will give IT more visibility around costs, as well as

core analytics to determine the existing and future value of cloud and non-cloud systems. The heat is on IT

to stand-up end-to-end environments in a matter of minutes – not weeks or months.

But how does management avoid over-extending capital budgets and know down the road that the budget

won’t be stretched thin? 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 what IT services are

being consumed and by whom. Visibility and control over critical IT assets result 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 has the ability 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 costs, to prevent

cost over-runs well before they impact the business.

The purpose of this paper is to explore the evolution of IT, with an emphasis on the control of IT services as

they shift back to enterprise IT. We’ll look at how this control comes with a price, in terms of complexity and

lack of visibility into consumption costs, as well as the business value these IT services can provide.

This paper will take you through the power hybrid IT consumption-based tracking solutions bring,

such as the ability to expose issues with resource utilization, manage what services are provisioned,

and gain complete visibility and control across all IT assets, cloud and non-cloud.

Conclusions reached in this paper include:

• Key reasons why the control of IT services is moving back to centralized enterprise IT.

• The challenges when monitoring consumption of IT services, in terms of costs and business

value, given the increasing complexity.

• The rise of cloud computing exacerbates this problem, and cloud and non-cloud assets

should be managed using a single consumption monitoring structure.

• The steps for planning for consumption-use tracking, moving from requirements to the right

consumption monitoring and cost analytics technologies.

Execut ive Summary

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Since the emergence of cloud computing in 2008 we’ve seen a shift, and then a re-shift,

in IT 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 technology. This included the use of public cloud services, such as

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. The belief being business value outweighs any potential

concerns with circumventing IT approval processes. This type of usage has become

known as “shadow IT.”

Shadow IT – Good News…Bad News

The “shadow IT” movement decentralized IT assets in many enterprises, 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 back to enterprise IT.

As depicted in Figure 1, control is now re-shifting back to central IT from something that was best

defined as “chaotic” within most enterprises. All systems, cloud and non-cloud, are being placed under

IT’s direct control. In many instances, IT had no say or control in how these systems were built,

deployed, and managed. It’s not surprising technology for these systems is rarely standardized, often

lacks security and governance, such as cost monitoring which is often sketchy, at best.

Figure 1: While the use of cloud computing led to a rise in “shadow IT”, and thus more decentralization of IT assets, in 2015 we’ll see a clear trend around the return of control to central IT. This shift should be complete by 2016.

Central Ownershipand

ResponsibilityChaos

2012 2016

Value Shi f t for Enterpr ise IT - CIO and Operat ions Teams

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The fall of shadow IT brings both good and bad news.

The good news is centralized control means fewer issues with the operations of those IT

solutions, and thus more value that’s brought back to the business. Moreover, there’s the opportunity

to provide better governance and cost management, thus 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 IT must understand what the new responsibilities mean, in terms of management ap-

proaches. The IT world becomes more complex. More systems to manage creates the need for auto-

mated tools, and processes to provide the right monitoring and management. This means monitoring

operations to maximize uptime, as well as monitoring costs, and even monitoring the value that core IT

systems return to the business.

Despite the fact that there is more work for IT 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 impact to the business, as well as

understand the true strategic value of IT as a tactical and strategic asset to the business.

A 2014 survey by GigaOm discovered that governance and financial control of cloud usage is now

a core concern amongst IT leaders (see Figure 2). This was barely a blip on the priority list just

a few years ago.

Figure 2: In a 2014 survey of IT leaders, Gigaom found that 35 percent of respondents cited governance and financial control of cloud usage as a core concern.

What are your biggest concerns when deploying public cloud environments?

Percentage of respondents citing concernSource: Gigaom Research Survey 2Q2014, n=303

Selecting and configuringapplicationsfor the cloud

Selecting which data setsare appropriate for the cloud

Security and compliance concerns

None of the above

29

35

35

81

2

0 10 20 30 40 50 60 70 80 90

Governance and financial controlof cloud usage

The Rise of the Cloud Serv ice Provider

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Figure 3: Clearly, there is a shift in ownership of IT services delivery back to Central IT. This evolution requires a fundamental change in how we monitor and manage IT costs.

Considering the delivery model of cloud service providers, it’s helpful also to understand

the evolution of these providers. There are a few paths from which they have emerged:

Clearly, there is a shift in ownership of IT services delivery. While it was once chaotic, and somewhat

distributed, these days, it’s 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.

Strategic use of TechnologyBusiness IT

ShadowIT

On-Demand

TacticallyFocused

Distributed Focused Centrally Controlled

Shi f t in Ownership of IT Serv ices Del ivery

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For most enterprises, this shift is an opportunity to correct issues around management and

governance that currently exist, and may have existed for many years. This is certainly a

good idea. However, right now dynamics within the enterprise 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 IT, which is held responsible for operations

of these assets, including cost efficiencies.

• 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

understand spending patterns, and predictive analytics to understand 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 that can be provisioned by a single user, as well as governing who can leverage which

resources, and for what purpose.

The shift in ownership comes with some risk and cost. Those who understand the impact of taking on this

responsibility also know that the approaches to cost monitoring and control have to change.

Accessibility to cost information by users requires automated tools that provide clarity into IT consumption.

Now is the time for IT to prepare for these fundamental shifts.

Shi f t in Ownership of IT Serv ices Del ivery (contd. )

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• First, 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 the granularity of

the services, and how the services interact

with other services, including any service

dependencies.

• Enterprises need to understand who’s

consuming the services, as well as how

those costs track down to the resources

they actually bind to the services.

• For example, an application may invoke a

few APIs for storage services that actually

involve aspects of AWS, Microsoft, and

private cloud resources. You need to

understand how all of these things interact

in order to understand the true cost metrics.

• Second, the tipping point to manually manage

resources is long past. This means the number

of services that enterprises manage have

reached a point where use-based accounting

and consumption monitoring using manual

processes no longer works.

• Third, just as we’ve reached the tipping point

for services, we’ve also hit the tipping point for

service consumers. There are too many users

and organizations that leverage cloud and

traditional IT services to track manually, but this

tracking is vital for both track-back and show-

back cost allocations.

• Finally, the lack of usage tracking means little

visibility into past usage of resources, cost

information, and future trends that should be

proactively addressed. The enterprise system

managers have no deep understanding about

where the resources are consumed, or by

whom, or how much it costs the enterprise.

This information should be delivered using an

up-to-date analytics solution purpose built for

IT, and tightly coupled to detailed consumption

tracking.

The call to action for IT is clear -- it’s time to put in place the necessary management

systems, best practices, and approaches to cost governance, management, and analysis

to drive fast decisions. 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, solving this problem

needs to be the top priority.

Considering our definition of the problem, including increasing complexity and centralizations,

it’s clear that a few core problems must be solved:

Management & Focus on Value Management

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The right solution provides cost visibility, cost analysis, cost accounting, and cost

governance -- at the enterprise level, not just for specific clouds. Holistic and

heterogeneous systems need to be put in place to track the costs of cloud-based and

traditional IT services across many brands and types, and the systems must do so

from the point of consumption (such as an application) down to the resources involved

(such as storage or a database).

As we focus more on real-time reports and analytics to bring true clarity to our enterprise IT service

usage, cloud and non-cloud, we need to consider a few basic concepts. The most important focus

on consumption and cost analytics:

• Real-time monitoring around costs and ROI.

• Providing charge-back and show-back to the consumer(s).

• Setting limits using polices around resource consumption.

• Determining value and true costs by tracking back uses

through all resources employed, cloud or traditional.

As depicted in Figure 4, the use of real-time cost monitoring and analytics tools takes data gathered

from IT service operations, both cloud and traditional, and turns it into usable information to determine

risk and the value to the business.

Figure 4: By providing real time cost monitoring and cost analytics, IT leadership will finally have the visibility and clarity required to make core tactical and strategic decisions.

Valueto the

Business

Risk

Cost

Services

APPLICATIONS

DATA

MANAGEMENT

INFRACTURE

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Real-T ime Reports & Analyt ics Br ings Clar i ty & Dr ives Decis ions

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Real-time monitoring around costs and ROI allows

enterprise IT to see what things cost, not only

in terms of operational cost, but also how these

costs map to capital expenses. For instance, the

cost of running an accounting system on premise

may be relatively low, day-to-day, but the systems

cost over $5 million to build, test, and deploy. That

factor should be considered in the cost analysis as

well. Public cloud-based systems are a bit easier

to track, in terms of cost, since they typically don’t

have any capex costs bound to them. However,

they may be made of up many different IT services

(a composite), and you have to consider the usage

of those services as well. This process quickly

becomes complex and thus requires tools to help

track true costs, as well as automate management

and governance of those costs. Most enterprises

are already well past the tipping point.

The ability to provide charge-back and show-

back to the consumer(s), meaning that we have

detailed billing, is part of the output of this system

to allocate costs back to those who consume

the resources. This allows IT management to

determine how the costs, and the thus the value,

are being spread across working groups within

the enterprise. Accurate charge-back data helps

determine overall strategic value, and also

provides a foundation for cost and consumption

predictions using a cost analytics system.

The ability to set limits using polices around

resource consumption refers to the ability to

govern costs. For instance, setting limits on who

can provision a cloud-based server instance,

and how many they can provision at once. These

policies are not designed to limit IT workers’ and

end-users’ ability to gather the resources they

need, but rather provide the ability to provision

resources cost efficiently.

The ability to determine value and true costs by

tracking back uses through all resources employed,

cloud or traditional, is not just about determining

what single resources were leveraged to meter and

monitor usage. It’s also about all of the IT assets

leveraged to provide those resources. For instance,

a single application may utilize both public

cloud-based and local Oracle databases, as well

as application servers that exist in several different

data centers, and also public cloud-based servers

from time to time. All resources have different

impacts on the cost of the application, and thus all

must be tracked in order to determine the true cost

of operations of that application.

Real-T ime Reports & Analyt ics Br ings Clar i ty & Dr ives Decis ions (contd. )

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The financial analytics value of ITaaS (IT as-a-

service) is clear, in terms of monitoring and control

of IT assets. What’s not clear is how to get started.

We suggest a clarity and cost control approach

using consumption tracking via the following

process:

1. Consumption Tracking & Cost Analytics Plan

Create your consumption tracking and cost

analytics plan. This rides on top of the existing

enterprise architecture. Much like security and

governance strategies, the consumption tracking

and cost analytics plan becomes systemic to

all that is IT. This includes traditional systems

that may be decades old, newer enterprise

applications, and now the use of public and

private cloud resources.

The plan should define the value of this

technology, specific to your enterprise. For most

cases, this will be the value of resolving issues

such as the one’s illustrated in this paper. Again,

cost visibility leads to understanding, which leads

to better management and cost control, which

leads to savings, and thus more ROI. That’s the

objective here.

2. Best Path to Real-Time Monitoring

Determine the best path to real-time monitoring

around costs and ROI for your IT assets, including

which specific systems should be monitored,

and what information needs to be gathering

while it’s monitored. Typically this means finding

and partnering with technology providers that

offer consumption tracking and cost analytics

capabilities, and leveraging that technology to

gather the right data, at the right times, providing

the right information to the right people and

processes.

An example of such a system is presented in the

next section of this paper. However, it should

be noted that these systems are only useful

in the context of understanding the value of

leveraging technology for financial analytics

and consumption tracking. Thus, planning and

understanding your own issues within enterprise

IT is critical to the success of the approach, and

the use of financial analytics technology.

3. Leverage the Information

Determine how the information will be leveraged.

In many enterprises, this means charge-backs

and show-backs to allocate budget amounts for

those who leverage the IT assets. However, this

also means setting limits using policies around

IT resource consumption. Include key analytics

that go well beyond simple monitoring, such as

understanding consumption patterns and time

series trending, to determine everything from the

likelihood that costs will increase or decrease

in the next year, to patterns of consumption that

show uneven distribution of IT resources based

on the value to the business.

The path to clarity and cost control is easy to

define. However, the right technology partner

makes all the difference. Those who see their

IT environment becoming more complex and

far reaching with the use of cloud computing

and other technologies need to consider

consumption tracking and cost analytics now,

before things get even further out-of-control.

How to Del iver ITaaS to the Business, for the Business

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In order to understand and quantify the demand for IT services, you need visibility into

cost analysis, both past and future. As depicted in Figure 5, we have good, better, and best

approaches, where the best approach is an understanding of the detailed consumption of

all resource units by department, as well as detailed costs by resource unit.

In gathering the data depicted in Figure 5, we identify the largest consumers, and understand why they are

the largest. Also, define the unit cost of data for baselines and benchmarking. Finally, a dashboard helps

report and track information, and provides the ability to track this data back to the IT resource.

These tools enable you to make the right calls, in terms of IT services that should be considered for

relocation to cloud-based platforms. Without this data, you could select IT services that are actually more

costly to run in the cloud, or perhaps don’t provide the business value to even be considered for a move to

the cloud. Moving the wrong services to the wrong platform is a common problem for enterprises.

Technology solutions that address these challenges include those by Cloud Cruiser. Cloud Cruiser offers a

foundational capability for your hybrid IT investments, based upon measurable, defensible IT service usage,

not arbitrary accounting allocations. You can now make clear decisions around the migration of traditional IT

services to cloud, based upon real business need and eliminate wasteful spending caused when the wrong

services move to the cloud and don’t provide the best impact to the business (see Figure 6).

Figure 5: In order to determine costs, you need to understand consumption.

BE

ST

BE

TT

ER

GO

OD An aggregate of existing consumption

and costsTop down look at costs at the server or instance level compared to a total forecasted number

WHAT YOU NEED WHAT YOU’LL GET

Existing consumption by major resource group (CPU, memory, storage, network)

Costs by major resource group

T-shirt sizing (S-M-L-XL) comparison data

Demand counts for build or buy decisions

Improve ability to estimate public cloud costs

Detailed consumption of all resource units

Detailed consumption of all resource units by department

Detailed costs by resource unit

Understanding of biggest consumers and why

Unit cost data for baselines and benchmarking

Dashboard level reporting and tracking

More credibility in business cost analysis

Leveraging the Right Tools

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Other features you should consider for an IT service migration strategy include:

• Automated IT cost collection across any hybrid IT which provides automated collection of all IT cost

data from any private cloud, public cloud, and traditional IT computing platform. This data is leveraged

as foundational analysis to understand the true value of moving services into private, public, or hybrid

clouds.

• Universal heterogeneous IT cost metering allows complete cost transparency by collecting any

measurable IT service cost from web services, APIs, databases, spreadsheets, log files, and more.

Considering the issues covered in this paper, this helps you understand existing costs prior to the

migration of IT services to cloud-based platforms, as well as understand the value they deliver, or not,

when hosted on cloud-based platforms.

• Hierarchical IT cost resource mapping allows you to align your IT budgets with business goals by

providing finance and management with cost visibility by department, IT service, business function,

technology tower, or any other accounting structure.

Figure 6: Good consumption tracking and financial analytics tools should provide a “single pane of glass” view of all IT services, and provide information as to their usage.

Leveraging the Right Tools

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Changing Responsibi l i t ies and Future Direct ions

It’s clear that control of IT services is moving back into centralized enterprise IT. Enterprise IT needs to

prepare for the change as it becomes the primary broker and manager of IT services. Approaches and

technologies that monitor consumption and costs should be put in place now, as well as approaches for

financial analytics to provide the right degree of visibility.

The increasing complexity and desire for cost and budget controls highlights IT’s inability to monitor

consumption of IT services, in terms of costs and business value. This exposure is leading to a crisis of sorts

as complexity continues to rise. Once we reach this tipping point of too many services and APIs to track and

manage, enterprise IT will have a hard time regaining control.

Enterprises need to proactively plan now for using consumption monitoring and financial analytics systems.

Deliver the right services at the right time to the business and at the right cost, it’s simply not possible

without a centralized IT view.

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Leading technology publications frequently name David S. Linthicum among the top 10 enterprise

technologists in the world. He is a true thought leader in the industry, and an expert in complex distributed

systems, including cloud computing, data integration, service oriented architecture (SOA), and big data

systems. As the author of over 13 books on computing with over 3,000 published articles, as well as

radio and TV appearances as a computing expert, he is often quoted in major business and technology

publications. In addition, David is a frequent keynote presenter at industry conferences, with over 500

presentations given in the last 20 years.

David’s industry experience includes tenures as CTO and CEO of several successful public and private

software companies, and upper-level management positions in Fortune 100 companies. Dave has delivered

over $2 billion dollars in value by transforming companies from traditional to innovative technologies, and

moving them to lucrative exits that benefitted investors, employees, and customers.

About the Author : David L inth icum