An essential component of any cloud computing implementation is costs involved in your cloud services program. And sooner or later, you’ll have to consider presenting those costs back to the departments utilizing the services as a chargeback, or at the very least, showback.
Chargeback (or showback) makes your service consumers and revenue-producing business units aware of the costs of IT. These costs are often substantial, and rarely revenue-producing. Chargeback and showback also allow you to control those escalating costs, improve decision-making, align behavior with organizational goals, and lead to effective use of IT.
A New Perspective for IT Groups
An accountable cloud services program can be a big change for some IT groups as they evolve into service-based organizations and the services they provide become consumer driven. This in turn creates pressure to adopt more business-like processes and practices.
The services provided need to be like any other product or service in a consumer-driven marketplace. They also need to be the right product, at the right time, and at the right price. Without that, consumers are going to go elsewhere, and you’ll be in danger of creating shadow IT, with systems created in the public cloud, outside of your control and governance.
While it may sound daunting to introduce chargeback or showback into your organization, as we have discussed in other blogs recently, it’s all about the journey. And again, as I’ve said before, each journey starts with a single step. And it’s likely that you’ve already taken a few steps along this path, with your costs being tracked in some form or other, probably based on asset acquisition and depreciation cycles, but these don’t take into account other costs that are presented when providing an IT service.
A better route to take is this: Develop a Total Cost of Ownership (TCO) model for your IT assets, and in addition to the acquisition costs, incorporate lifecycle management, maintenance and support costs. While this is a step in the right direction, it still may not be the best approach to building a cost model for your Cloud Services.
It’s the internal IT “cost of service” that often trips up those embarking on their Cloud Services journey. Trying to set up a cost model that provides 100% cost recovery in an ever-changing environment is a never-ending task. Instead, you need to consider the services provided from a consumer point of view, a different perspective indeed.
Cloud Services consumers are business driven. They’re looking for consistent, predictable pricing that they can use to decide whether or not to buy from you or from your competition. It’s less about service costs and more about value delivered. But it’s also important to keep in mind the cost of costing and develop a model where the benefits outweigh the related expenses of creating the model. You should optimize your model to achieve a balance between costs and accuracy, and to minimize overhead costs.
5 Factors to Chargeback/Showback Success
To make chargeback or showback successful, you need to take into consideration 5 key factors:
The more closely costs are aligned with charges, the higher the accuracy of the chargeback model. And this in turn is conducive to realizing cost reductions because it bases both provisioning and consumption decisions on actual costs.
The consumers of your services need to understand how charges are formed, what they’re being charged for, and what the units are that make up the costs. Being transparent about the cost models, and the process that created them significantly increases the buy-in from the consumer. On the flip-side, low transparency and understand-ability lead to a resentment of the chargeback model, dooming the project to failure.
Another critical factor is giving the user community the ability to control their own billing, and to be able to realize cost reduction opportunities in the consumption of the cloud services that they’re using. If a manager feels they can’t throttle-back on the consumption within their teams should they need to, this again can lead to resentment of the charging model. It will also give the feeling that the in-house services being offered aren’t helping them to manage their departmental budgets.
It’s also important to establish if the costing model is going to stimulate the desired chargeback results, such as cost awareness and control. An ideal model should enable consumers to see for themselves the cost of what they’re requesting and this will drive a behavior that makes them select the optimum configurations they need. It should discourage consumers from selecting the biggest and most expensive systems just because they’re available. This leads to more competitive costing and pricing, and a reduction in internal resource conflicts.
Finally, do all the stakeholders from the various departments find the cost model acceptable? If they do, they’re going to support the chargeback process, which will result in a successful cloud project.
Developing a Cost Model for Cloud Services
In summary, in developing a cost model for your Cloud Services, you should certainly start with what it costs to provide. But those numbers can and should be amalgamated to give you a baseline for costing and not an end result. You then refine your numbers based on other factors, and then socialize them with relevant stakeholders to ensure you get the buy-in you need to make the project a success.
Don’t get tied up on bits, bytes, asset depreciation, or VM-to-Host density ratios. They mean little to your consumers, they just want to know how much it’s going to cost and what they get for it. If you want to see a demonstration of how to create and manage cost models for your cloud infrastructure, why not request a demo of vCommander today?