Illuminating the Cloud for Increased ROI

May 30 2012 | by Sharon Wagner Cloud Cost Management, Cloud Economics

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Whenever I speak with CIOs and IT professionals about the benefits of cloud computing, I encounter a wide range of responses – from enthusiasm, to guarded optimism, to even outright skepticism.

While it’s clear that the cloud is playing an increasingly central role in IT, both the opportunities and challenges inherent therein, can be tricky to navigate. This has created a situation where efficient and economical use of the cloud is not all that common.

By clarifying some of the major issues swirling around cloud computing, I hope to equip the business community with knowledge and insight that will allow them to better maximize their IT investments.

The True Cost of Home-Grown Hosting vs. Cloud Vendors’ Economies of Scale

One of the misconceptions I’ve found in the IT and financial community is that buying servers and hosting them internally is actually more affordable than outsourcing to the cloud.

On the surface this might seem accurate. If you divide the cost of the machine by the number of months in its expected service life, the cost typically is lower than that of most cloud vendor’s monthly fees.

However, a more comprehensive look at all the associated costs of running an internal data center show that this approach – relative to the cloud – is a very expensive proposition. Electricity, storage space, related IT infrastructure, administrative and of course hands-on IT management, all add up very quickly.

Cloud vendors, on the other hand, with their economies of scale can easily offer hosting that is far more affordable than what any single company can do on their own.  In addition to the financial advantages, there is also the added benefit of agility that businesses require in today’s competitive market.

Capex, Opex, What’s The Difference?

In addition to the cost-savings that outsourced cloud services provide, there is the financial issue of capital expenditures or Capex versus operating expenditures, or Opex. When it comes to cloud computing, going Capex and purchasing machines is problematic for both the CFO and CIO.

CFOs will not be pleased locking up large amounts of capital in machines that might not even be fully utilized. CIOs probably view marrying a machine which might not be able to provide sufficient capacity and power in the future, as a real liability.

Going the Opex road and outsourcing to the cloud allows CIOs and CFOs the flexibility to end or adjust the cloud relationship, based on cost, variable computing needs, and other relevant factors that might arise.

Shadow IT, Unpredictable Weather Forecasts and Over-Provisioning

If we want to enjoy the major benefits of outsourced cloud computing, we must also understand the inherent challenges and issues that can derail a successful cloud strategy.

While it’s true that the cloud offers flexibility, scalability and affordability, all of these benefits have a potential, undesirable flipside. Because it’s so easy to order up some more computing power, cloud services, and fries on the side, renegade and unauthorized usage by IT staff, commonly known as shadow IT, can be problematic.

If not managed properly, shadow IT can create hidden costs and possible security issues – a big no-no for any company. Very quickly, IT departments find themselves without control or even insight into the services being consumed, or even under-utilized, within their own organization. As independent units deploy in the cloud, the management and maintenance of these systems can lapse and quickly costs spiral out of control.

Additionally, there is the unpredictability in outsourced hosting costs. Cloud vendors are well known for both changing pricing rates and plans, making it hard for financial departments to forecast IT cost.

And even if vendor costs are steady and strict measures are in place to police shadow IT, most companies find it nearly impossible to accurately predict and allocate just the right amount of cloud resources. A smart IT manager quickly realizes that he/she needs to be able to gain visibility to the entire corporate cloud environment, centralize the management of the systems and create methods to do more with streamlined resources in the cloud – or face a potentially very nasty bill for cloud services at the end of each month. No one wants to get caught unprepared for peak traffic, but on the other hand, running at max capacity during slower times, can be prohibitively expensive.

Enabling Real Cloud Economics

For today’s IT departments to offer the best resources for the enterprise, the move to the cloud is becoming a necessity. To do this without loss of control, business and technology decision makers need to be able to see, measure and be notified on cloud cost and consumption violations from day one. With this in place, IT’s management of cloud spending can be on budget and dynamically managed for optimal cost or performance improvements.

To properly maximize the ROI for outsourced cloud IT, companies need a platform that will allow them to monitor and track their provisioning along with their actual usage of those resources. Here at Cloudyn we are currently tracking over 400,000 virtual servers and our system is able to not only provide insight and visibility into true usage patterns, but also to craft recommendations for realistic and affordable provisioning and control.

This gives CIOs and CFOs an unprecedented view, in real-time, into what is being used, when and by whom, so they can perfectly provision for both peaks and troughs, while controlling cloud usage and costs.

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