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The most important statement we will make is that we encourage all organizations that have a significant IT budget – enterprises, small businesses, universities, state & federal governments – to take action to understand what you have, who is using it, and how much it costs. While we would love everyone to use our products and services, we are more interested in people realizing the tremendous business value to be gained from taking basic steps to reach IT cost awareness. As Barb Gomolski from Gartner says in the article, taking the first step doesn’t need to be a complex project. Start by gathering all of your costs (All the tools on the market won’t really help you with that step). Then, if you haven’t kept good track, figure out how everything has been provisioned – who asked for what resources and whether they are still using them. This simple exercise may quickly, and fairly painlessly, identify unused resources that can be eliminated.

Along the way, share the information with business users. Yes, we know this may not be normal for IT – exposing where the IT budget is going and how it is being used – but in this economic environment, how can any of us afford not to share information that is critical to the survival and success of our organization? Doesn’t it ultimately affect our own employment? If you look closely at the paragraph above the pie chart in the article, you’ll see that 75% of 100 non-IT folks surveyed wanted more information about how IT dollars were spent. We find that to be an amazing statistic, particularly in light on the comment by Jake Seitz at First American Corp, “if they knew how much it could cost their department, they would be more cautious about requesting less critical services.” What a great concept!

The idea is reinforced by Cameron Haight (who has a terrific blog ) – “providing periodic reports to their end users showing resource consumption and using this as a means to have a discussion to address excesses.” [emphasis added]

A great paragraph near the end of the article speaks to what we have seen – budgets decreasing, demand for virtual servers increasing based on the logic that “It’s virtual so it doesn’t cost anything.” Of course folks in IT know that tens or hundreds of virtual servers can’t be rolled out at no cost to IT. Until IT has a cost profile for what it is provisioning to enable a dialog with users about choices, IT will be stretched thin physically and financially. Accountability could not be more critical today.

Please read the article. Feel free to comment here or at Network World. The more ideas that get shared, the better we will all be at delivering value to the businesses and organizations that will propel us back to a strong economy. If you want to discuss anything with us, call 877-6-VALIGN. We are passionate about this topic and really enjoy talking to people about what they are experiencing.

Bronagh and visitors to the booth

Visitors learning more about VAlign.

These visitors asked a lot of great questions during the demonstration of our capabilities. We can provide you with an online demonstration at your convenience. Just give us a call or click on any of the demo links on our web site.

IT Usage Visibility – These projects implement a method of measuring and reporting the usage of IT resources by parameters such as organization, location, application or service. The data output is typically used for capacity planning, financial planning and other purposes. Example questions answered include: Who uses our CRM application? Which business unit consumes the most virtual resources? How is the entire organization using the virtual server environment?

IT Cost Visibility – Projects of this type provide a method of measuring costs, relating the costs of IT resources to various business entities and reporting the results. The method is usually based on usage for fairness and transparency. The data output may or may not be sent to financial systems for cost recovery. Some of the questions answered are: What are the costs to provide IT services to our business unit in Hong Kong? What are the annual costs for the ERP application? How should the costs of our virtual infrastructure be equitably shared by lines of business?

IT Chargeback – These projects are the same as cost visibility, however, output data is always sent to financial systems for cost recovery purposes. Organizations typically initiate chargeback projects to enable ‘pay as you go’ or ‘utility’ models for IT services.

Defining the project type early in the conversation guides the path VAlign and our customers follow to success!

We think this can help ease the burden of IT providing the data Finance needs in the format / timetable / delivery mechanism they request. Since we can export into XML, CSV, PDF or Word formats, there should be something for everyone here – whether the exec just needs to add it to their Excel model, print and email around a PDF/Word doc or actually feed it into another system (via XML), the data certainly does not need to be “read” from our Reporting front-end. Although it’s nice to have Web-based reports that are viewable from a secure portal too.

On a similar note, several organizations using the beta version really like how administrators of our system can set a surcharge for the allocation of extra resources to a VM. For instance, a VM with 2 or 4 virtual CPUs can incur a percentage uplift for that; this is desirable because the performance of all other virtual machines on the same hardware will be degraded, so they want to charge a premium and discourage it. We call the above a ‘tiered model with thresholds’.

We’d like to this VAlign requires minimal administration time – especially with our ability to do bulk, automated assigning of rate policies and consumer mapping through the Client GUI. Please email me directly at bronagh at valignsoftware dot com if you’ve got some other requests to simplify the initial pricing, mapping and ongoing admin of the cost modeling.

A lot of tools launch a little UI and prompt the user to enter a price per metric for their ‘chargeback solution’. Ugh… yeah, that would be great IF I KNEW WHAT THE RATE SHOULD BE. Most of the challenge is exactly this – determining the rate, based on the total cost pool you need to recover, usage of the resource over a period of time, etc.
Anyway, since most of us at VAlign have worked in enterprise chargeback and/or virtualization for a while, we knew customers needed something more. So we built this wizard to help ensure you don’t over- or under-recover for a CPU minute, Network i/o, disk GB, memory GB, etc. Our tool considers: (1) the capacity of the infrastructure this rate is being applied to, and (2) the amount of money a particular rate card needs to recover. (We can also aggregate and compare costs at many organizational levels, including global, line of business, department and so on.) The key here is the guidance / wizard we provide to do this.
The output of our Cost Pool Calculator (CPC) is a daily amount of money that a rate card needs to recover. The CPC is comprised of cost pools represented by a ‘tab’ (e.g. Labor or Hardware or License & Maintenance; depreciation and recovery percentages are considered by this way). Some other vendors say they have something similar but it’s basically an Excel spreadsheet – lame!
So, why is this important? When accounting views a bill, they can map charges back to the CPC and understand exactly what a bill is covering. We’re speaking to the business folks here and basically, there is no way to successfully implement IT chargeback – whether for your virtual infrastructure or any other IT services – unless finance and business execs (who might ultimately foot the bill) can understand the data you’re providing and see the back-up proof necessary to trust your numbers.

I’ve gotten this question a lot from people interested in understanding how to figure out the usage and costs of their virtual environment. Several of our beta users are just now getting a feel for the power of allocation-based billing. This is especially beneficial as they plan a smooth roll out and transition into chargeback for their virtual infrastructure. So below is a short run-down on this topic. (Keep an eye out on our resources page because we hope to produce a short whitepaper on this topic later this spring.)

A simple way to describe an allocation model is “pay for the resources you are dedicated” and an on-demand, usage model as “pay as you go for what resources you use.” A hybrid model allows both allocation for some resources and usage-based for other resources (e.g. allocation for VCPUs and usage for storage).

Basically, in an allocation-based billing model, the owner of a VM pays for e.g. the number of virtual CPUs (VCPUs), reserved memory assigned to a virtual machine, network bandwidth or maybe a chunk of storage and that price won’t be variable in their bills. This is great, “flat-rate” style of pricing to produce predictable bills for users or as the basis for cost calculations. It can also be a nice, comfortable way to get your business units prepared for the concept of IT billing in the short term and perhaps move to usage-based billing later to really drive optimized usage from your consumers.

As such, the majority of VMware customers plan to begin with an allocation-based model for the above reasons, but also because it’s easier for everyone to understand! VAlign handles the difficulty of understanding and implementing this model with our ability to leverage the cost-pool calculator and wizards to help guide you to ‘price’ aspects of your infrastructure and let it determine the allocation.

Once customers are more comfortable with the bills they are producing, the move to usage-based biling is easier. And, although it’s a bit more variable and potentially tricky to implement politically, the benefits outweigh the costs. Providing true usage-based bills is the most powerful way to curb VMware sprawl, optimize IT Operations and change user behavior. You turn the lights off when you leave the house because it’s you the bill comes to at the end of the month!