04 / 09 / 14
3 Options For Effective Cloud Cost Transparency                                                                                                                                                                                                                                 
Cost awareness in cloud is a real conundrum. Bring up the term chargeback with an IT professional or line-of-business customer of IT and you’re likely to get a highly negative reaction - it’s a bureaucratic hassle that rarely matches the real consumption of resources with the cost allocation charged. 
In fact, few of the largest corporations do chargeback, and those that do simplify it to the point of not being where it’s no longer an effective decision tool. Yet, building a cloud that smooths the way to boosts consumption with automated ordering and provisioning, without establishing a way to charge users for what they consume, is likely to yield result in a free-for-all of resource consumption. If there’s no price tag associated with cloud services, there’s likely to be little concern in the user community for conservation, choosing lower performance solutions or giving back what’s no longer in use.
So what’s the middle path here? If you’re building or buying a cloud, these are a few concrete options to drive meaningful cost awareness:
1) Focus on relative costs rather than absolute perfection. The goal of chargeback is to encourage efficient resource consumption through transparency. Don’t overcomplicate the effort by splitting every hair. Focus on the major resource categories that make a given service more or less expensive than alternatives. Pick a few points of charging that make sense to users, like TB of storage capacity, count of virtual server instances or network bandwidth, and set a single price for them that includes all the software, management tools, staff, data protection, facilities etc. Make sure you capture all the costs so that you don’t underestimate the cost of delivering service, but do so in a way that is easy to understand. Also, keep in mind that it will be an iterative process to get it right. Spend the time to communicate what you’re doing openly, be willing to change things when users bring up real issues and focus on building trust.
2) Implement memo-back instead of chargeback. Full-blown chargeback is such a hassle mainly because of the mechanics of setting effective rates and transferring funds among departments. Informational chargeback systems can make departments aware of their consumption, and its financial impact without excessive overhead. The social pressure among managers to avoid egregious waste can be a surprisingly effective tool in improving efficiency, leading to the alternative term for this practice, “Shameback”.
3) Use your public cloud bill as the basis for chargeback. If you use public cloud resources, you get a bill each month for what you use. If you correlate that information to who is using it, you have a solid starting point to track and understand resource costs. Remember though, that the public cloud bill is just part of the cost of running the cloud. You have to gross up the costs to include the management tools, staff, network and other resources that goes into using a public cloud in a corporate IT environment, plus any private cloud resources consumed if you’re running a hybrid cloud.
Andrew Reichman is an analyst, consultant and speaker in the IT industry with experience at Forrester Research, Accenture, EMC and Washington Mutual Bank; he’s focused primarily on cloud, storage and data center economics.

For more thought provoking cloud management insights, please visit vmware-erdos.com.
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3 Options For Effective Cloud Cost Transparency                                                                                                                                                                                                                                 

Cost awareness in cloud is a real conundrum. Bring up the term chargeback with an IT professional or line-of-business customer of IT and you’re likely to get a highly negative reaction - it’s a bureaucratic hassle that rarely matches the real consumption of resources with the cost allocation charged. 

In fact, few of the largest corporations do chargeback, and those that do simplify it to the point of not being where it’s no longer an effective decision tool. Yet, building a cloud that smooths the way to boosts consumption with automated ordering and provisioning, without establishing a way to charge users for what they consume, is likely to yield result in a free-for-all of resource consumption. If there’s no price tag associated with cloud services, there’s likely to be little concern in the user community for conservation, choosing lower performance solutions or giving back what’s no longer in use.

So what’s the middle path here? If you’re building or buying a cloud, these are a few concrete options to drive meaningful cost awareness:

1) Focus on relative costs rather than absolute perfection. The goal of chargeback is to encourage efficient resource consumption through transparency. Don’t overcomplicate the effort by splitting every hair. Focus on the major resource categories that make a given service more or less expensive than alternatives. Pick a few points of charging that make sense to users, like TB of storage capacity, count of virtual server instances or network bandwidth, and set a single price for them that includes all the software, management tools, staff, data protection, facilities etc. Make sure you capture all the costs so that you don’t underestimate the cost of delivering service, but do so in a way that is easy to understand. Also, keep in mind that it will be an iterative process to get it right. Spend the time to communicate what you’re doing openly, be willing to change things when users bring up real issues and focus on building trust.

2) Implement memo-back instead of chargeback. Full-blown chargeback is such a hassle mainly because of the mechanics of setting effective rates and transferring funds among departments. Informational chargeback systems can make departments aware of their consumption, and its financial impact without excessive overhead. The social pressure among managers to avoid egregious waste can be a surprisingly effective tool in improving efficiency, leading to the alternative term for this practice, “Shameback”.

3) Use your public cloud bill as the basis for chargeback. If you use public cloud resources, you get a bill each month for what you use. If you correlate that information to who is using it, you have a solid starting point to track and understand resource costs. Remember though, that the public cloud bill is just part of the cost of running the cloud. You have to gross up the costs to include the management tools, staff, network and other resources that goes into using a public cloud in a corporate IT environment, plus any private cloud resources consumed if you’re running a hybrid cloud.

Andrew Reichman is an analyst, consultant and speaker in the IT industry with experience at Forrester Research, Accenture, EMC and Washington Mutual Bank; he’s focused primarily on cloud, storage and data center economics.

For more thought provoking cloud management insights, please visit vmware-erdos.com.

#cloud management #Andrew Reichman #business Posted 5 months ago
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