IN THIS CHAPTER

Explaining the reason to balance costs with needs

Defining the hybrid cloud economic advantage

Understanding the value of various cloud models

Examining the costs of the data center

One of the most confusing issues that a business faces when moving to cloud services is understanding and planning for the costs and the economic impact on the business. It is not surprising.

First, costs can change dramatically when a business begins to use a cloud service for a limited set of functions, such as testing, creating an application, or storing data in a cloud service. These initial costs can be quite reasonable and often dramatically less expensive than using data center services. However, management is often taken by surprise when the use of cloud services expands dramatically. There may be a logical reason for the costs of the cloud services.

Balancing Costs with Requirements

It is imperative that you be able to understand the costs and benefits of leveraging different models of computing. When you begin your thought process around the economic impact of the cloud, you realize that there are no simple answers. You have to consider a variety of issues that impacts your decision-making process. The costs of running an application, such as ERP, is more complicated to calculate than looking at just how much you pay for the software and the expense of employing the required staff to run the application. You must also consider issues such as cooling, floor space, and capital expenses versus operating expenses — the list goes on. The reality is that organizations — from small and mid-size to the largest global enterprises — are moving toward cloud environments to increase flexibility and cost efficiencies. Correctly balancing the use of different public and private cloud services is critical to creating long-term longevity to support your business goals. The hybrid cloud allows an organization to leverage a variety of computing models based on current and future needs of the business in order to support changing customer requirements.

Striking the Right Balance of Environments for a Hybrid Cloud

Operational performance, security, economics, and flexibility all have a great impact on an organization’s cloud strategy. Striking the right balance among public cloud services, private cloud, and the data center requires a pragmatic planning process. Planning must take into account the needs of a variety of business units as well as an understanding of the future business strategy. Finding the right combination of environments is critical for your organization to achieve the best value when creating a hybrid cloud strategy. Consider the following:

• Public clouds offer amazing capabilities for scalability and a variety of third-party tools and applications. However, just because you are using a third-party service does not mean that you are off the hook for security, governance and compliance. Therefore, you want to make sure that you have the right services to protect your assets and ensure that you are placing data in the appropriate location.
• You can’t leave the selection of your cloud services to chance or whim. Rather you need to establish a set of guidelines that applies to central IT as well as business units. For example, what is your policy on the type of data that you can store on a variety of public clouds? Which data needs to be behind your firewall? Which data needs to remain in the country of origin? Are there data sources that you need to have near immediate access for analytics? Don’t assume that everyone will agree with your plan without a well executed communications plan.
• You have strategic line of business applications that run in your data center and you have a mandate to move to the cloud. This can offer you potential cost savings and agility. However, you need to do your homework. For example, it is far more expensive to move an aging monolithic application to the public cloud. So, before you start a migration, do your homework so that you understand your own applications that are critical to the day-to-day operations of your business. Have a well thought out plan.
• Your organization may become too reliant on a single vendor. While this may give you clout and economies of scale, it may also leave you at risk. Sudden pricing increases may impact your budget. Also, if that vendor has a sudden outage, you have no recourse. Many organization are selecting several public clouds in order to reduce financial as well as technical risks.
• As your business strategy evolves, you may decide to become a service provider to your own customers. In this case, you need to review the costs of exclusively using a single public cloud to deliver services to customers. What are you able to charge your customers for your services? Do you have a robust internal IT organization that can transform itself into a commercially viable service provider? What are the risks of either using a public cloud provider or creating your own internal cloud? There isn’t one right answer. You need to weigh all the factors and come to a well considered decision.

Computing is not a simple environment. It is dynamic and rapidly changing as new technologies become available and as standards emerge that transform how vendors offer their services. Costs can change in the blink of an eye. A new service emerges that will cause you to rethink your execution plan. Therefore, it isn’t enough to simply set a strategy and plan in motion and execute blindly. You need to be ready to reevaluate your plan often as the market for cloud computing market matures.

Reaping the Economic Benefit of the Cloud

An organization typically has many different types of workloads to manage in its data center, and some of these workloads will be a better fit than others for a cloud environment. Therefore, to optimize your economic benefit from the cloud, you must first have a good understanding of your workload requirements.

Commodity workloads, such as everyday email, collaboration, and messaging applications, are straightforward and well-defined business processes executed over and over again. The economic benefit for workloads with these characteristics comes from leveraging cloud capabilities such as standardization, optimization, and scalability. A commodity workload such as email, analytics, and cloud native applications are a good fit for the cloud.

A customer-facing financial application in the heavily regulated financial industry may be better suited for a private cloud environment. While there may be a well designed SaaS application that can handle the task quite well, there may be cultural and governance reasons that a business will chose a private cloud. Therefore, any potential economic benefit from the public cloud is outweighed by security and compliance issues. An organization may have specialized workloads that are used occasionally by a select group of users. These specialized workloads may have run effectively for many years in the internal data center, so there may be no economic benefit in moving them to the cloud.

After you evaluate your mix of workloads, however, you will find many situations where the standardization, flexibility, and scalability of the cloud can deliver outstanding economic benefit.

A move to the cloud is likely to deliver an economic benefit if you need

• Increased capacity: Your organization is ramping up for a new but short-term initiative, and you temporarily need some extra CPU capacity and extra storage.
• A Software as a Service (SaaS) solution: As your company has grown and diversified, everyone on your distributed sales force seems to be running a different version of your internal sales automation tool. You have recently lost out on some big deals based on discrepancies in customer and prospect data across different sales teams. You decide that implementing a SaaS solution to run your sales automation will ensure that all members of the sales team have consistent and accurate information when they need it. (See Chapter 9 for more on SaaS.)
• Scaled application service: Running your email system requires more and more servers and lots of system administration time spent on maintenance and upgrades. You decide that a massively scaled application service in the cloud will deliver the performance you require and allow you to move the skilled administration team to focus on other projects.

The next few sections look these scenarios from an economic perspective.

Understanding the Economics of the Data Center

It’s hard for most organizations to accurately predict the actual costs of running any given application in the data center. A particular server may be used to support several different applications. For example, how do you accurately judge how many personnel resources are dedicated to a single application? Although there may be a particular month when your staff is updating one application, those same staff members may be troubleshooting a different application in another month. In some organizations, there may have been attempts to tie computing costs to specific departments, but if so, the model is likely to have been very rough.

Consider, as a simple example, the use of email. Some departments are very heavy users, whereas others barely touch it at all. Pockets within a single department may be heavy users. Although technically you can monitor individual use, doing so would require more overhead than it’s worth. In addition, overhead costs associated with supporting customers when they forget their password or accidently delete an important message can surpass expectations and add to the overall costs of running an application such as email.

Latency is a key consideration when considering the cost and benefit of computing services. There may be some surprising instances where using a cloud service might cause problems. Take the example of a business that requires its employees to take qualifying exams every month. The online service is well designed and able to execute on the testing. However, there are often peak periods when too many people in too many companies are all doing the testing at the same time. The vendor may not have architected its cloud service to handle the load. This could result in slow performance or outages. Not all cloud vendors have a well designed architecture that can handle the requirements of its customers. The bottom line is that you need to evaluate your vendors based on your own needs today and in the future.

To prepare for your evaluation of on-premises data center costs, you need to look at the costs that are directly and indirectly related to the application or type of workload you want to move to the cloud (public or private). Some of these indirect costs are hard to evaluate, making it difficult to accurately predict the actual costs of running any given application in your company. Here is a fairly comprehensive list of the possible costs, with notes:

• Server costs: With this and all other hardware components, you’re specifically interested in the total annual cost of ownership, which normally consists of the cost of hardware support plus some amortization cost for the purchase of the hardware. Additionally, a particular server may be used to support several different workloads.
• Storage costs: What are the management and support costs for the storage hardware required for the data associated with this application? Storage costs may be very high for certain types of applications, such as email.
• Network costs: When a web application you host internally, such as email or collaboration, is moved to the cloud, the strain on your network may be reduced. However, keep in mind that ensuring that users in your company have on-demand access from anywhere to cloud services requires substantial bandwidth. Consider how the cloud vendor will charge for use of networking services. When you move data or workloads in and out of the cloud how does the vendor charge for that service?
• Backup and archive costs: The actual savings on backup costs depend on what the backup strategy will be when the workload moves into the cloud. The same is true of archiving. Say that you’re thinking of moving some workloads to the public cloud. Will all backup be done in that cloud? Will your organization still be required to back up a percentage of critical data? There are many different options for storing data in the cloud. (For more on cloud storage, you should flip to Chapter 13.)
• Business continuity and disaster recovery costs: In theory, the cloud service will have its own disaster recovery capabilities, so there may be a consequential savings on disaster recovery. However, you need to clearly understand what your cloud provider’s disaster recovery capability is. Not all cloud providers have the same definition of disaster recovery. IT management must determine the level of support the cloud provider will offer. This can be an added cost from the provider, or you might seek out a secondary vendor to handle disaster recovery and procedures. Many organizations have redundancy and diversity built into their cloud strategies to mitigate business continuity concerns.

• Data center infrastructure costs: A whole series of costs — including electricity, floor space, cooling, building maintenance, and so on — go into the data center. Because of the large investment in data centers, moving workloads to a public cloud may not be financially viable if you’re only utilizing 40 percent of the data center’s compute power. (Of course, you can deploy a private cloud to take advantage of the underutilized space and the advantages of the cloud.)

  However, if your data center is 80 percent full and has been expanding at 10 percent a year, you’ll soon need a new data center. At that point, you may have to build a costly data center. The cloud will be a much more economical choice in order to divert workloads away from the data center.

• Software maintenance costs: What’s the annual maintenance cost for the software you may move to a cloud-based service? Although the answer to this question may seem simple, things can easily get complicated if a specific software license is part of a bundled deal or if an application is integrated with other applications in your environment.
• Operational support personnel costs: A whole set of day-to-day operational costs is associated with running any application. Some costs are general ones that apply to every application, including staff support for everything from storage and archiving, to patch management and networks, to troubleshooting and security. Some support tasks, however, may be particular to a given application, such as database tuning and performance management. Costs may be offset by emerging cloud management and automation tools.
• Infrastructure software costs: A whole set of infrastructure management software is in use in any installation, and it has an associated cost. For example, management software is typically used for many different applications and can’t easily be divided across specific applications.

Evaluating Costs in the Hybrid Environment

In order to make a smart economic choice about running workloads in your internal data center versus implementing a public or private cloud, you need to understand some of the subtleties of the cost factors. You also need to consider potential hidden costs associated with the cloud and, in particular, a hybrid cloud. There’s always a cost to change, including the following:

• Management: Management of a hybrid environment brings additional challenges. You no longer need to simply manage the data center, or even one cloud, but instead multiple environments — on-premises, in your private cloud, and on one, if not multiple, public clouds. People, processes, and software can help with management, but they each have their own costs involved. See Chapter 4 for more details on multicloud management.
• Data transfer: When you transfer data, say from your premises to an application in a public cloud, costs are involved. This includes the fee to initially move your data to the cloud. These costs can quickly mount if you have large amounts of data requiring lots of bandwidth. Furthermore, depending on your cloud vendor, you can incur networking fees when moving data between different VMs within the same cloud (for instance, during backup or replication).
• Customization: If you’re migrating an application to the public cloud that was on-premises, there may be costs associated with customizing the application so that it can now work in the hybrid environment. Most likely, some configuration work and testing will be done first. In addition, that application may not be well designed for the highly distributed nature of the cloud environment in its current form, and it may need to be rewritten.
• Integration: In a hybrid model, you will probably want to integrate various applications. For example, your off-premises CRM application might integrate with your on-premises business intelligence application. Sure, you might have to integrate them if they were both on-premises, but it will probably take you more time to figure it out in a hybrid model.
• Storage: As you move data and workloads to a hybrid cloud, you will really have to balance and think about your long-term storage costs.
• Compliance: Compliance (external or internal) can be an increased cost when using the cloud. It may be necessary to have the cloud service audited to see that it meets the appropriate requirements, which may relate to IT security or recovery procedures or any other such IT activity that must obey compliance standards. This is in addition to your existing on-premises audits. Compliance requirements might come from several sources:
  • Vendors and partners: An example would be credit card companies requiring companies who accept credit cards to comply with the Payment Card Industry Data Security Standard (PCI DSS).
  • Customers: Customers may require that you produce an SSAE 16 or similar report to evidence various compliance requirements.
  • Governmental bodies: Your organization may need to comply with local, national, or international compliance standards. These include Health Insurance Portability and Accountability Act (HIPAA), and Sarbanes–Oxley (SOX), along with dozens of others.
  • Internal compliance: You may have compliance requirements that your organization has established. These may be even more specific than externally required compliance.
  • Server: If an application is relatively small, running in a virtual server, or perhaps only running occasionally, it’s unlikely that moving it to the public cloud will result in any server hardware savings.
• Storage: Similarly, if very little storage is consumed by the application, there may be no reduction in SAN costs.
• Data center infrastructure: The floor space in the data center will not be reduced by the removal of a few servers, and it may make little difference to cooling costs. The change usually needs to be significant in order to bring down these costs.
• Operational support personnel: Savings occur here only if there’s a possibility of saving the cost of a staff person or delaying the recruitment of another person.
• Infrastructure software: Infrastructure management software costs may not come down with the movement of a few workloads into the cloud.

From a policy perspective, companies shouldn’t simply take an action because it seems cheaper. You need to have a policy on what must stay in the traditional data center or in a private cloud and why (for example, privacy and complexity and singularity of the workload). You should have a policy that states that automation and self-provisioning will support the business and enable it to react quickly to opportunities. There also needs to be a policy that specifies when a workload can safely be moved to a public cloud — and whether the data is safe enough in the private cloud. All these questions are part of the larger economic decision-making process.