© 2009 IBM Corporation

Sig Puchacz

spuchacz@us.ibm.com 512-658-0758

Usage & Accounting in the Virtual & Cloud Environments

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Agenda

IT Pressures and Needs

The Cloud Requirements to Management Account

– Models

– Data Capture Requirements and Importance

– Reporting Capabilities

– Process Model for Service Catalogs and Accounting

– Performance and Capacity Management Ties to Financial Management

– Recommendations

Benefits

3

IT Departments contain many different platforms, environments, sub-system, and users:

Costly to own, maintain, and operate

With unique record formats and metrics

Ill equipped to discuss services delivered in a business context

What problem does it help solve? Inability to allocate IT costs, usage, and value – IT Cost Transparency

Unix / Linux / Windows

Databases & Networks

Storage & many other systems

Internet & E-Mail

Mainframes

Time sheets

Power Consumption

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....service sourcing and service value

Cloud Computing …

ORGANIZATION CULTURE GOVERNANCE

Flexible Delivery Model

Public …• Service provider owned and

managed.• Access by subscription.• Delivers select set of

standardized business process, application and/or infrastructure services on a flexible price per use basis.

Private …• Client owned and

managed.• Access limited to client

and its partner network.• Drives efficiency,

standardization and best practices while retaining greater customization and control

Cloud Services

Cloud Computing Model

.… Customization, efficiency, availability, resiliency, security and privacy

.…Standardization, capital preservation, flexibility and

time to deploy

Driving the necessity of cooperative performance/capacity management and cost accounting!!!

IAAS SAASPAAS BPAAS

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Cloud Services DeliveryElastic Scaling

Rapidly provisionedService usage billing

Ease of useStandardized offerings

Infrastructure Characteristics for effective Cloud Delivery

Service-oriented; easy to use service catalog Advanced virtualization and automated

management Common components and processes Advanced security and resiliency Rapid provisioning of server stack and storage

resources, with seamless accounting for resource use

Usage Based Pricing in Cloud Delivery Requires Knowledge of Service Usage and Resource Usage

As organizations move to private or public cloud, they must be able to demonstrate usage based pricing

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Virtualization: Significant advantages / new challenges

From Dedicated Systems, Storage, Applications . . .

. . . to Shared Virtualized Environments and SOA

Advantage:

More simple to account for with a spreadsheet – one machine, one workload, and one cost center

Challenges – Resources are highly underutilized which means:Paying more for hardware and softwareUnnecessarily high energy costsUsing more real estate than requiredMore assets that are harder to track, manage,

and maintain Inflexible to varying peak in demand

Data storage

Host

Servers

Advantages:

Better utilization of existing resources so future investments can be deferred

More cost effective – hardware, software, energy, staff, and floor space

More responsive to differing peak loads

Challenges:How to allocate costs

Prove to the users they’re getting what they deserve

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Plan your Financial Management Transformation Roadmap

Simplified

Shared

Dynamic

Consolidate

Virtualize

Automate

Implement asset-based costing

Manage full-capacity licenses

Reduce infrastructure complexity

Improve business resilience (manage fewer things better)

Improve operational costs/reduce TCO

Implement usage-based costing

Manage sub-capacity licenses

Increased hardware utilization

Allocate less than physical boundary

Reduce hardware costs

Simplify deployments

Granular service usage metering and billing

Deliver automated license management

Standardized Services

Dramatically reduce deployment cycles

Massively scalable Autonomic Flexible delivery

enables new processes and services

Getting Harder to Truly Know IT costs

Service

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The “industry standard” starting point – establish a strong technology resource-based cost accounting system and then build upon that to a business service based or IT service based cost accounting system.

Resources are the people and IT equipment, hardware and software. Business Services are the business units or volumes that result in

resources being used and activities being performed. IT Services are all of the things done to carry out work related to the

use and maintenance of IT resources and processes. Cost Pools are the components selected to quantify the cost and to

account for costs. Billable Unit is the measured unit that is used to calculate the

charge for either the resource, business item or activity being charged.

Business VolumeDenominations

Resource Based(processor time, DASD storage)

Business Service Based

(checks processed, # of customers)

IT Service Based(produce report, install software)

TechnologyDenominations

CostPool Billable

Unit

Resource driver

Business driver

IT Service driver

"Collaborate to Innovate" 9

When Developing Management Accounting and Chargeback Models, Think Like A Utility Company

Utilities are the model of a shared service chargeback Electric, gas, telephone, cable

Each utility bill has several components Use electric bill as an example Has data about usage (meter)

− Measured in absolute units (kWh) Includes fixed fees for service

− Not based on usage Includes delivery charges,

taxes, etc. proportional to usage Each charge has an associated rate

Here, the metric is the same – kWh The rate varies for each bill component (each service)

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Cloud delivery requires service and resource usage informationCloud Service Requestor #1

Service A4 CPUs on Server 12 GB60 server hrs @ $25/ server hr 240 CPU hrs @ $5/ CPU hr120 GB hrs @ $3/ GB hr

Cloud Service Requestor #2

Service A3 CPUs on Server 24 GB50 server hrs @ 25/ server hr150 CPU hrs @ $5/ CPU hr200 GB hrs @ $3/ GB hr

Cloud Service Requestor #3

Service B2 CPUs on Server 11 GB100 server hrs @ $20/ server hr 200 CPU hrs @ $3/ CPU hr100 GB hrs @ $2/ GB hr100 DB2 Support hr @ $2/ DB2 Support hr

Cloud Service Provider

Service A Costs

Server 1 CPU usage = 3,000 CPU mins * $.40/min

Server 2 CPU usage = 2,500 CPU mins * $.60/min

Server 1 software usage = 60 hrs * $15/hr

Server 2 software usage = 40 hrs * $10/hr

Server 1 labor costs = $40

Server 2 labor costs = $60

$3,060

$2,600

Service A revenue = $5,660 Service A costs = $4,100

Cloud Service Provider

Service B revenue = $3,000

Service B Costs

Server 1 CPU usage = 5,000 CPU mins * $.40/min

Server 1 software usage = 80 hrs * $15/hr

Server 1 labor costs = $40

DB2 Help Desk = $50

Service B costs = $3,290

Profit

Loss

Service Usage Resource Usage

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Virtual ServersNeed to collect and report resource data from any combination of

– The virtual machine manager/hypervisor– The operating system hosted on the virtual machine– Applications hosted on the operating system within the virtual machine

Virtual Machine Manager or Hypervisor

(PR/SM, VMware, IBM PowerVM, z/VM)

VirtualServer

… …Virtual Machine

E-m

ail

Ap

plicatio

n

RD

BM

S

Usage Processor

Operating System VirtualServer

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DataCollector

TUAM

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Elements of IT Management Accounting

SoftwareNetworkStorageServers

Floor Space

Power

Development / Test

Labor

BackupRecovery

• Looking at each of these in a vacuum can lead to poor decision-making and investments• Need a balanced view of today’s total costs to better future investments

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Failure to Accurately Allocate and Distribute Costs can Lead to False Economics

How Are CostsAssociated With

Applications?(ATM, Credit Card,Commercial Loans,

Mortgages)

How are Applications

Associated With Departments And

Resources?

DetermineUtilization

Create Department

Reports/Invoices

Receive Recoveries

From Departments

What Costs Need To

Be Recovered?

ITFMA.COMIT Financial Management Association Lack of resource usage data makes it:

Difficult justifying IT expenses

Failure to make proper investment choices

Challenging to determine if a line of business is profitable without IT costs

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Typical Allocation – Management Estimates

Best Practice Allocation – Actual Costs

Distributed % MF % Distributed % MF %

Power Cost 0 0 $15,084 100 $11,917 79 $3,167 21

Labor Cost 0 0 $350,000 100 $210,000 60 $140,000 40

Floor space 0 0 $11,620 100 $6,300 54 $5,320 46

Software OTC depreciation

$120,240 60 $102,472 40 $216,194 97 $6518 3

Software S&S and MLC

$168,783 50 $168,783 50 $181,242 54 $156,325 46

Hardware OTC depreciation

$103,691 25 $311,074 75 $184,435 44 $230,330 56

Hardware Maintenance

$20,276 25 $60,829 75 $37,151 46 $43,953 54

Network 0 0 $4,758 100 $ 4,758 100 $0 0

Total $412,990 29 $1,024,620 71 $851,997 60 $585,613 40

Accurate Cost Allocations Usually Show a Truer Picture of Costs and Aid Investment Decisions

Total $1,437,610 Total $1,437,610

Best practice allocation is to use actual distributed and mainframe costs In this example, the mainframe allocation decreased from 71% to 40%

Sample monthly allocation

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Align IT Software Spending with Business Priorities Capability

Who is consuming which IT resources?

What is the cost of those resources, including those that are shared?

How should IT allocate cost for chargeback, ROI, costing analysis, and reporting/billing?

Data collectors for IT infrastructure can review consumption across multiple dimensions

Costing engine assigns cost to resource usage

Costing and reporting engine associates and report usage costs to consumers of IT resources

All three questions help align IT spending with business priorities

What is needed to do Usage & Accounting?Three variables to the equation

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Know What IT Costs!!!

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PowerVM Examples (Cont’d)

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Cloud Service Cost by Client

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Example of Cloud Service Billing

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05/08/09

Cloud Detailed Service Cost Report

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Drilldown of Usage Data Captured and Exploited

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Example of Resource Usage Trend report over a period of time

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http://docs.dfw.ibm.com/knowITcosts/

3333 IBM Confidential

TSAM Web UI / Service Catalog

TSAM 7.2

TPAE Admin UI

Finance Management : Usage Scenario

• Enable CSR file transfer between servers (OS)• Enable daily CSR file creation (TPAE)

• Activate capacity change tracking (DB configuration)• Define file location (set system property)• Activate scheduling (activate escalation)

• Define account code structure • Define rate codes • Customize processing of CSR file(Transfer and Process)

Daily creation of TSAM CSR file

• Create Project and Add Server• Add / Remove Server• Cancel Project

• Create/View Service Usage Reports• Enable billing

• Get CSR file • Process CSR file

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CSR

Identifiers• Host name• Server type• Service type• Deployment instance• Deployment owner• Chargeback owner

Resources• Server hours • CPU hours• Memory hours

TSAM CSR file content Integrated SolutionsConsole

Processing Engine

Web IFReporting Engine

DB

TUAM 7.1.2

Cloud Provider Admin

Cloud Service Requestor

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Cloud Admin

• Add Account Information

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CSR

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Need to more closely join IT production workloads and new workloads to investment alternatives evaluations

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What Are We Trying to Decide?

New service or planned

growthWhere can I host?

Does it fit?

Existing?

New and which new?

What does it cost

to operate?

• Hardware

• Software

• Facilities

• Administration

• Etc.

• Hardware

• Software

• Facilities

• Administration

• Etc.

Option A

Option A

Option B

Option B

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Build the Cost & Value Milking Stool

The Technical Case(Operations)Analyze the impact of a new service or forecasted growth

Build the hardware, personnel, software, and facilities impact cases

Ensure cases cover both operational performance impact and service levels/availability

The Value Case(Together)

What are the main value items of your service?

What is the best both short term and longer term technical solution?

The Costs Case(IT Finance)

How do the costs of the new service compare on differing solutions?

Ensure you are comparing like-for-like capabilities. Include all costs that can be identified.

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IT Accounting Assigns Expenses to Specific Services Through Cost Types and Classifications

Servers, Hosting, and Management

Database Provisioning, Hosting, and Management

Servers

Windows System Management

SQLServer Service

Oracle Server Service

Unix System Management

MySQL Service

Cost Type Amount

Hardware

Software

Hardware Maintenance

Software Maintenance

Staff

Facilitates

Group Similar Services Determine ServicesDevelop Cost Types and Classifications and

Assign them to Specific Services

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Recommendations

IT Operations– Ensure that you’re capturing three levels of technical

metricsSystem level metrics – how much room do I

have?Which workload (s) on which server (s)Workload level metrics – what could I move or

what is the impact of growth or contractions?

– Software stacks need to be associated with servers– Start associating facilities requirements to servers:

EnergyCoolingFloor spaceCablingRacks

– What are my people to server ratios?

Service UsageHardwareSoftwareHardware maintenanceSoftware maintenanceStaffRackCablingEnergyCoolingFloor Space

Server UsageHardwareSoftwareHardware maintenanceSoftware maintenanceStaffRackCablingEnergyCoolingFloor Space

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Recommendations

IT Finance– Be able to monetize facilities, software, hardware, and administration

costs – Build investment models covering Total Cost of Ownership rather than

Total Cost of Acquisition of service delivery alternatives

Alertnative 1 Amount Cost Yr1 Cost Yr2 Cost Yr3 TotalHardwareSoftwareHardware MaintenanceSoftware MaintenanceStaffRackCablingEnergyCoolingFloor space

Total

Alertnative 2 Amount Cost Yr1 Cost Yr2 Cost Yr3 TotalHardwareSoftwareHardware MaintenanceSoftware MaintenanceStaffRackCablingEnergyCoolingFloor space

Total

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Recommendations

Together (Operations and Finance) with services sponsor, balance cost alternatives and version value

Preferred Alternative Amount Cost Yr1 Cost Yr2 Cost Yr3 TotalHardwareSoftwareHardware MaintenanceSoftware MaintenanceStaffRackCablingEnergyCoolingFloor space

Total $XX $XX $XX Sum of $XXService Benefit $YY $YY $YY Sum of $YYReturn on Investment or Business Benefit $YY-$XX $YY-$XX $YY-$XX

SUM of $YY-$XX

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Management Accounting Starting Recommendations Track assets at the application level, not server

– Simplifies asset accounting as servers disappear Gather shared resource costs into appropriate categories

– Accurate costs and low chargebacks influence Lines of Business to deploy on the shared service environment

– Reduce distributed server and storage sprawl, lower datacenter costs Identify additional cost drivers, create cost sub-categories and identify metrics to track usage

of those resources– Greater transparency and visibility to cost details reduce LOB challenges against charges and

simplify reconciliation– Identifies levers that LOBs can pull to affect costs

Incorporate standard unit cost forecasting into the shared resource environment– More accurate invoices, fewer true-ups, tighter relationship with LOBs

Create a longer range plan with regard to service catalog “bundles” and a more comprehensive roll out plan

Acquire or build a management accounting application which will process the accounting units for all services delivered, not just IT. The application should provide information repository, summarization, costing of usage, and self-service reporting

Acquire or build a time reporting application which will integrate with project tracking, service management, and possibly payroll. Establish time reporting guidelines for all of IT to better assign costs to services

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IBM can help you realize immediate benefits

Increase Client (Business Units) Satisfaction– Real Usage = Accurate Reporting – Accountability = Improved services– Alignment between Business and IT costs

Lower Infrastructure Cost– Reduced server sprawl– Higher utilization – Rationalization of resources

Continued Infrastructure Improvement– Understanding costs can lead to managing

costs– Usage comparisons can lead to more

effective investments

When running a business, nothing matters more than

knowing how much something costs.

You can’t manage what

you don’t measure!

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Russia

DankeGermany

GrazieItaly

GraciasSpain

Dank u Belgium

BedanktNetherlands

Dankschen Austria

Dekuju Czech Republic

Takk Norway

Tak Denmark

Jag tackar Finland

Dziekuje Poland

TackSweden

Toda Israel

Engraziel Switzerland

Tesekkür ederim Turkey

Dakujem Slovakia

ObrigadoPortugal

Thank YouAustralia

MerciFrance

ThanksUnited States

Thank YouUnited Kingdom

End of presentationGo raibh maith agat

Gaelic