Demystifying the Economics of Virtualization and Cloud Computing

Michael Vizard
Slide Show

Make the Financial Case for Virtualization and Cloud Computing

With the advent of virtualization and cloud computing, figuring out the actual cost of enterprise computing has never been more important or complicated.


Now that every application to one degree or another is eventually going to wind up sharing IT infrastructure with some other set of applications, ascribing costs to each application gets significantly more difficult. In the past, when every application pretty much had its own servers, the costs were clear, except for mainframe and minicomputer environments that were designed from the ground up to run a symmetric multiprocessing environment that supported multiple applications.


But now that virtualization and cloud computing are pushing the concept of shared IT infrastructure across the entire spectrum of IT, application owners want to know what their true costs for running these environments actually will be. In addition, the chief financial officer-along with the rest of the board of directors-is demanding a more line-by-line accounting of the allocation of IT resources.


Conceptually, most IT leaders should welcome this increased level of scrutiny. It gives them a chance to show how efficient they can be, which represents a significant change of pace after decades of meetings with senior managers that only really wanted to know what the availability of IT services was without much regard to the actual budget. The challenge facing many IT organizations today, says Chris Pick, chief marketing officer for Apptio, a provider of IT financial management tools that are available as a service, is they just don't have the tools needed to delve into all the financial elements of the overall IT equation.


For example, a new survey of 100 CIOs in the U.S. that was conducted by the market research firm Worldwide Executive Council on behalf of Apptio finds that while the vast majority expect to see increased utilization of virtualization and cloud computing in 2011, about half of them do not break out the cost of specific cloud computing services, largely because usage levels have not become high enough yet. Furthermore, 40 percent report either not tracking usage levels or not doing it very well.


Financial management within the IT department has always been shakier than most IT organizations care to admit. But with more economic pressure than ever being brought onto IT, it's pretty clear that IT organizations are going to have to start making some compelling financial cases, especially when it comes to getting funding for private cloud computing initiatives when there is so much compute power available in the form of public cloud computing. Of course, public cloud computing pricing can be deceptive, which simply creates another argument for acquiring tools that help IT organizations cut through the haze of cloud computing pricing. That capability, adds Price, is especially important when many IT organizations have already invested in the IT infrastructure they need to create a private cloud, which means the true cost of a private cloud might be a lot lower than they realize.


The bottom line is that there is too much riding on getting the numbers right because one wrong step could lead to a series of cascading events that could be catastrophic for the IT department. And you can bet that the providers of cloud computing services are doing everything they can to shade the financial analysis in their favor regardless of, and sometimes in spite of, the current economic IT realities.



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Mar 17, 2011 9:45 AM Bill Sorenson Bill Sorenson  says:

We've seen a dramatic move to cloud infrastructure and services from companies under 100 employees.  By outsourcing and hosting all of an organization's applications and data in dramatically secure computer centers, smaller companies can get the benefits without the costs normally associated with large infrastructure and redundancy.

Besides the no capital costs to get involved, the real financial benefits relate to having disaster recovery built in and moving completely to a pay for use model.  Small companies now have access to services only large ones have previously.

Bill Sorenson

CEO

www.ivdesk.com

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