risk and return mark skilton, global director, capgemini applications outsourcing co-chair, cloud...

Risk and ReturnMark Skilton, Global Director, Capgemini Applications OutsourcingCo-Chair , Cloud Computng Workgroup, Cloud Business Artifacts Project

+447787692197

[email protected]

Version 2September 24, 2010

CLOUD COMPUTING FOR ACCOUNTANTS

12.30 – 13.00 ICAEW

2Cloud Computing© Copyright Capgemini 2010 All Rights Reserved

Cloud Computing for Accountants

Risk and Return

An overview of security, risk and return, providing guidance on risk assessment, ROI (contracting cloud to traditional investment), and models to help decision making

Agenda-The ROI Value of Cloud-The Risks of Cloud-The Risk-Reward Trade-off-Example Cloud Scorecards


The ROI Promise of Cloud Computing

Cost Compression 20-80% reduction in support costs

1:2 to 1:5 times reduction in support and maintenance costs through virtualization and redistribution of FTE resources from internal to external

Time Compression weeks Hours / minutes provisioning

1:5 to 1:500 times faster Provisioning and de-provisioning

Business capability weeks Hours / minutes sourcing

1:5 to 1: 100 times faster TransformationAccess to new business services and solutions.

Continual service support and development 50-200% faster

1:2 to 1:10 times faster access to development and continuous improvement, leverage shared ecosystem

Expectations are High !


The trade-off

Cos

t/ P

erfo

rman

ce

Performance curves

Time

“Race to the Bottom”

QoS

Added-Value

COSTSAVINGS

IMPROVEBUSINESS-IT Performance


The ROI Value of Cloud


The Myth of Capacity Utilization

Capacity-Cost Performance

Capacity

ComputeStorage…

Time

You just lostcustomersLarge

CapitalExpenditure

OpportunityCost

PredictedDemand

TraditionalHardware

ActualDemand

AutomatedCloud capacity

Predictions Cost Money…

Source: Amazon Web Services

A “Cloud Icon”


Cloud Computing is more … a range of Business Operating Metrics

Rapid Provisioning

Speed of Cost reduction- Cost of adoption / de-adoption

Optimize Ownershipuse - faster access to new assets, capabilities

Increase Margin(Make more money)

Dynamic usage- Elastic provisioning &service management

Risk and ComplianceImprovement Skills, and capabilities

dynamic sourcing

Dynamic capacity, utilization


Capital and Cash flow leverage

Rapid Provisioning

Speed of Cost reduction- Cost of adoption / de-adoption

Optimize Ownership use - faster access to new assets, capabilities


Value creation

Increase Margin(Make more money)

Dynamic usage – Elastic provisioning & service management

Risk and ComplianceImprovement


The Risks of Cloud


BUT for the Returns there are Risks ….

There are three key considerations within a fourth business Context

Value

QoS Risk

Business goals Qualitative

Quantitative

SLA Objectives

Impact severity

Planned

Unplanned

Mitigated

Devolved

Remove / Urgent

Shared

ROI

TCO

WACC

Cash flow

Value Creation

Scorecards / Metrics

What Benefits ?

What Risks ?What performance ?


What security, compliance risks in Cloud ?

Provider lock-in, lock-outData securityCompliance and regulationsService Level AgreementsCustomization and service assemblyBackup/Recovery entrusted to vendorHigher long-term cost


Lessons Learnt – 1

1. Organizational Security Management – does the cloud certify to your industry standards and work with your IDM ?

2. Authentication (use, admin, both) of guest OS or at VM hypervisor – can you get the level of control and audit of the cloud services ?

3. Customer own defined standard Catalog & Virtual images – can you define your own catalog standards ?

4. Monitoring management – does cloud link to your configuration and licence management systems?

5. Incident handling management – is this verifiable and managed to your standards ?

6. Specify which geographic areas would be permissible for location of customers’ data – do you have control of location and service access ?


Case Study : 3 by 3 Harvard Medical School

Shared CommonService Platform e.g. email,

Storage

Blanket SubsidizedCapacity

Users but own IT assetsand contribute to Cloud

node Network Total capacity

SupportCharge backs

Burst Services Leasing

How a CIO made a business case for a cloud computing solutionhttp://searchcio.techtarget.com/news/2240021582/How-a-CIO-made-a-business-case-for-a-cloud-computing-solution

3 Chargeback methods3 Types of Cloud Service

Private Cloud

Group chargeallocation

IncrementalServerCluster

“Plug thenode”

e.g Extra 1000 coresfor short period

Service SupportCharge

Service Charge forper Core for period

1000 To 5000 Core roadmapDemand and Supply Stakeholder liaisons

Investigating Hybrid Cloud – burst to Pubic cloud to getpublic cloud cost savingsquestions on HIPPA compliance…

SUPPLYDEMAND

CommodityCloudServices

StrategicCloudServices

BurstTacticalCloudServices


The Risk-Reward Trade-off


Cloud ROI model FASTER, BETTER , CHEAPER…

SUPPLYDEMAND

What type of Workload and Service ?

Seasonal, Peak loads

Expanding Growth

Short term Peak

Cost Of Capital

Cash Flow

LOW COSTOF CAPITAL

LOW CASH FLOW Vol/Freq

LOW COSTOF CAPITAL

HIGH CASH FLOW Vol/Freq

HIGH COST OF CAPITAL

LOW CASHFLOW Vol/Freq

HIGH COSTOF CAPITAL

HIGH CASHFLOW Vol/Freq

Identify Candidates for OPEX Transition?





Target your Workloads for Cloud

1 Month 1 Year 3 Years

Cost/annum

1k

40k

20k

30k

10k

1 Hour

Period

DEV/TESTZone

OPERATIONSZone

EconomicClick barrier

$

TRANSITIONZone

Illustration





Economics of the Cloud

Scenario 1 Scenario 2 Scenario 3

Cloud versus On-premise Reserved Cloud Hybrid Cloud versus On-premise

CAPEX

OPEX

Cloud Off-premise

Purchase On-Premise

CAPEX

Purchase Co-Location

CAPEX CAPEX

Purchase On-Premise

PurchaseOn-Premise+ Cloud

CAPEXCAPEX

e.g. $35K annual Costamortized over 3 years

For Illustration Only

e.g. $8K pa

e.g. $15K pa

e.g. $17K pa e.g. $16K pa

e.g. $10K pa

Predictable Workload – Steady Demand Predictable workload + Variable workloads





Cloud ROI model FASTER, BETTER , CHEAPER…

Traditional TCO CLOUD TCO

Other

Security costs

Monitoring costs

Upgrades//Maintenance

Enhancements

Migration costs

Customization

Software

Software Licences

OS Licences

Hardware

PC/ Device costsNetwork costs

Server costs

Storage costs

Buildings/ Staff

FTE Staff Costs

Energy, Cooling

Facility Costs….

Other

Type of Security costs

Type of Monitoring costs

Part of Service Charge

Outsourced..

Migration costs

Configuration vs Customization

Software

Fixed MonthlyPay-per use Service Charge

Hardware

PC/Device costsOutsourcedPart of Service Charge

Buildings/ Staff

Partial FTE Staff Costs

Outsourced

Part of Service Charge….

Annuity / MonthlyPay-as-you-goService Charge

TransitionCosts


Identify scenarios for Cloud ROI Projects

ROI

Time

Cloud Solutions

i ii iii iv v

Identify what gaps and actions

Examine the Cash flow Positions

• Pricing

• Forecast accuracy of use

• Predicted workloads , fixed and variable

• Under / Over provisioning

• Flexibility costs

• Cost avoidance

• Security & Compliance costs

• Staff / Skills availability

• Business Risk cost impacts

• …

Sensitivity Analysis


Lessons Learnt - 2

1. Conduct Assessments of the opportunities and risks and use cases of cloud computing to test cases to understand the technical and business risks of cloud

2. Develop and Establish Governance requirements for cloud operations. Identify who owns cloud in the business from a user perspective and service provider management perspective ?

3. Identify the tools needed to monitor and manage application development and infrastructure development lifecycles

4. Determine Data and privacy classification to prioritise risk criteria of what goes in the cloud and what stays on-premise

5. Identify Demand - for cloud resources and tactical projects and work towards common cloud standards usage, identifying “cloud champions” and service users along the way

6. Choose Strategic Partners and Vendors -identify which vendors and partners to work with, testing vendors and establishing requirements that fit your organization

7. Using benchmarks to validate project requests for the cloud. Create scorecards and benchmarking procedures to assess projected and actual ROI.


Potential gaps are possible between

Business provisioning Cloud services

versus

IT department managed services

So… establish your cloud service strategy today with all your stakeholders,

Sources of demand and supply for IT and business


Example Cloud Scorecards


Cloud ROI Scorecard

24

New Cloud KPIs Funding profiles• Cash flow after taxes (CFAT)• Capex• Opex• NPV• WACC weighted average cost of capital• ARPU Average Revenue per user• AMPU Average margin per user• CAR Cost of asset recovery


Cloud Risk Scorecard

25

Risk and Security

ROI of Security example Levers

Security services target: • Identity federation costs 10-20% certification• Integration services costs 20-30% prebuilt• Industry Compliance costs 30% - 40% standards


Cloud QoS Scorecard

26

Service managementin the Cloud

Key QoS factors example Levers

• Fix on fail Fix before Fail• Service Level compliance & tool investment• RTO effectiveness• Certification of Factory services• Catalog solutions compliance • Continuous development & release• Licensing compliance


Examples of Benchmarking

27

Speed of Provisioning Data and compute latency


Cloud Compliance Checklist

28

Examples


Thank you


Introduction to the Speaker

Mark Skilton, Global Director, Capgemini Applications Outsourcing

Mark joined Capgemini 2009 with responsibilities for Global service offer development and delivery readiness. He has 25 years experience in IT and has held various positions as European CTO, Chief Architect, global Architecture community chair and founder of an SOA academy and CoEs. He is currently a Co-chair of The Open Group Cloud Computing Work Group Project for Cloud Business Artifacts and Cloud ROI and has published and spoken globally on the subject of Cloud computing. He recently authored a highly successful white paper on Cloud ROI which has been widely syndicated and has been published in the British Computer Society Year Book for 2010. He is currently co-authoring a Book on Cloud Computing with The Open Group due Q1 2011.

risk and return mark skilton, global director, capgemini applications outsourcing co-chair, cloud...

Documents

risks of cloud slide

cloud icon slide

roi value of cloud slide

cloud computng workgroup

example cloud scorecards

performance slide

rights reserved capital

utilization slide