Understanding the Real Cost of Cloud – Combating Shadow IT

By Jeanne Morain, Client4Client

Despite all the cloud experts, technologies and consultants – even the best laid plans could be sidetracked if costs rise out of control. This is in part due to the nascent nature of cloud computing being full of hidden costs, surprises and the clash of forces that are currently impacting IT. In theory, many present what they believe are value benefits based on the “greenfield” that is cloud computing. In reality, enterprises are truly a “brownfield” that will demand a hybrid model due to existing people, processes and technology. Expecting a large enterprise company to move from current to cloud is not realistic.

In Client4Cloud, we talk about some of the key planning concepts required to address the “clash in the cloud” that is creating disruption with IT departments everywhere. Like an onion, the cloud has complex layers that as you peel them away could uncover additional interdependent costs. Despite countless hours of research, planning and experts in cloud implementation – it is what you don’t know that will have the biggest impact on your overall implementation. All of the undocumented work around solutions, shadow IT processes and tools, technical deficiencies and hidden agendas are the biggest risk to a successful cloud implementation.

Cloud for Asset Managers

For IT Asset Managers, tracking assets and costs across the various cloud-based technologies can be a difficult task. Why? Many of the traditional tracking solutions either will not report accurately across the various networks or may no longer be applicable with alternative solutions such as Software as a Service (SaaS) models. What exacerbate the challenge are the many processes, applications, and solutions brought in by either the business or other departments as a “shadow” IT effort. It is nearly impossible to track assets that are not picked up by traditional reports, actively tracked on the books or “known” beyond tribal knowledge.

Many of the customers we spoke to admit that automating broken processes, without knowing the shadow IT in place to work around them, can lead to poor results for the business. For example, in one company, many of the developers were leveraging a public cloud provider for Dev. and Test. Oftentimes, the accounts were not even tracked but submitted as part of expense reports. When asked, the CIO could not tell how much they were paying across what applications. To address the issue – IT put in place a policy that employees could only expense usage from a 3rd party provider approved from the change management solution and one of three specific providers. They negotiated a set amount across the providers and created workflows to enforce the policies.

Trying to track all the areas of leakage is like tracking bunnies that are constantly multiplying – no easy task. It becomes even harder when the traditional tools at your disposable do not accommodate across the current to the cloud environment, leaving gaps and high room for error. What can you do in the interim while the market and technologies evolve to take advantage of the benefits of cloud computing without being buried in unknown costs? Focus inward on changing processes that will enable you to track costs, eliminate shadow IT where possible and lead the organization successfully to embrace the cloud.

Steps to Reduce Cloud Problems

Here are 10 key steps CIOs can take to reduce hidden costs and cloud stall from Client4Cloud (1) and Visible Ops Private Cloud:

  1. Move to a service portfolio view: In our book Visible Ops Private Cloud (2), we talk about moving to a service portfolio view. This will enable IT to understand all the components of the service from inception to end of life for that given service.
  2. Create the new role of product manager: Product managers can serve the same purpose for IT that they have for the vendors – visibility & transparency for profit and loss of the product over the lifecycle. As businesses become more dependent on technology for the products and services they offer, having the transparency, visibility and advocate to balance resources versus requirements will be more critical.
  3. Enhance processes to support service portfolio view from inception to end of life: Work with your executive program management office to assess current processes and artifacts. Do they capture requirements and modeling not just for initial investment but until overall end of life? Have the change management and release management processes been updated to support changes to applications that are off-premises?
  4. Calculate costs based on “depreciable life” of service – not just initial investment: Many programs are calculated just on the initial investment but do not take into account the true total costs of ownership required to support the “products” over their lifecycle.
  5. Partner with accounting: The business case for cloud should clearly break out the types of expenses over the depreciable life for any perpetual software. Typically, accounting will assign a depreciable life to the software selected. Even for technology not yet acquired it is best to ask what they would typically assign.
  6. Understand that Software as a Service, Infrastructure as a Service (IaaS), etc. are the gifts that keep giving: Unlike a perpetual licensed application – these solutions will incur the costs over the lifecycle of the service that typically is attributed to Opex.
  7. Calculate costs over the “lifecycle” of the service: This means including the total costs of maintenance, hardening, upgrades and support not only of the cloud component but also any on-premise applications that must be integrated to those solutions. For example, calculating the overall return on the equity investment should include full time employees (not just burst) for ongoing hardening, maintenance and support of the solution.
  8. Understand that, although cloud is primarily Opex, there are some CapEx benefits: Ask your financial planning and analysis team if you can capitalize any of the resources that are building out integrations, monitoring tools, and other elements needed to implement the solution. For example, if there were custom developed monitoring solutions to help monitor the different elements of the service across a SaaS application, on-premise cloud, and hosted application on Amazon EC2 – you may be able to capitalize any of the on-premise or custom developed components.
  9. Understand law of diminishing returns for cloud & requirements thresholds: Hosting solutions that only require limited data processing as needed for burst capacity is ideal. However, oftentimes, 3rd party IaaS solutions are used to work around current processes in place in order to quickly stand up new environments. Just like your grocery bill – the pennies for the cloud infrastructure will quickly add up and, as the volume increases, eventually hit the law of diminishing returns. Understanding what those requirements are, what that break-even and loss points will be based on your negotiated rates, and creating policies around it will be critical to controlling costs.
  10. Create a checklist for minimum viable service requirements for the enterprise: Have the business subject matter experts work with your product managers/business analysts to create a checklist of what constitutes a minimum viable service. The checklist can be leveraged to insure all the technology related requirements and costs are included in the overall business case.