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Why benchmarking cloud vs. current IT costs is so hard

By Bernard Golden | Dec. 4, 2009
Cloud providers make their services' costs quite transparent, says virtualisation and cloud computing specialist Bernard Golden. The trouble is, for most companies, current data centre costs remain opaque. Will new tools help?

A couple of weeks ago I was asked to moderate an HP-sponsored meeting on the subject of virtualisation. Predictably, most of the discussion (attended by press and vendors including Citrix, Microsoft, Red Hat, and VMware) focused on cloud computing. It was a pretty lively session, but what I want to address here is an HP product portfolio called "IT Financial Management" (at www.hp.com/hpinfo/newsroom/press/2009/090616xa.html?mtxs=rss-corp-news) that was discussed, along with its implications for cloud computing. As you might guess, the product focuses on financial analysis of IT operations, which is extremely relevant to the adoption of cloud computing.

Naturally, one of the topics raised during the panel was the potential cost benefits of cloud computing.

And, as one might expect, there was a lot of ambiguity about the putative financial benefits of cloud computing. While there was a lot of nodding about the undoubted benefits, no one offered concrete examples. I will say, however, that we've seen significant TCO savings in the projects we've done, but, as moderator, it wasn't appropriate to discuss them.

The paucity of examples is troubling. Most of the organisations that have implemented cloud solutions have done so with an intuitive belief that inexpensive, pay-by-the-use computing must be less expensive than the current asset-heavy, low-automation environment characteristic of most IT organisations. But they've forged ahead, mostly, without real proof.

The reason for this, however, lies not with the cloud providers. Their pricing is, on the whole, quite transparent. Amazon, for example, displays its pricing on its website and even features a nifty online calculator that may be used to figure out how much a given application topology and usage will cost.

The problem lies, instead, on the other side of the comparison ledgerthe cost of the incumbent solution placed within an internal data centre. Most IT organisations cost assessment is extremely coarse-grained. Typical is a cost assignment that imposes a per-server charge and then assigns a general overhead cost for IT headcount and general costs based on the using organisation's overall proportion of the corporate cost structure. Put another way, there is little ability to assess the actual marginal cost of an individual server; instead, a server comes with a fee plus the knowledge that a rather large surcharge will be delivered sometime in the future.

One can debate the reasons why this opaque cost methodology exists. My view is that IT used to be a very small part of an overall corporate budget and it didn't seem worth trying to perform fine-grained assessment on what was, in effect, rounding error. In the past 10 or 15 years IT expenditures have gone up precipitously, turning a small issue into a much larger onebut one still without adequate tools in place to address it.

 

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