5 Issues about Cloud Computing Budget
Some consider the financial aspects of Cloud Computing as real game changers. Different organizations and scenarios require different approaches, and there is no “one-size-fits-all” solution for that rapidly changing world of paying for information systems. As cloud cost reduction experts, we thought it would be great to share our observations and thoughts.
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1. Ownership and Allocation
Before we could consume our information systems from Cloud Computing providers, information systems budget was owned and allocated by a CIO in many organizations. Inside allocation and specifics were part of the CIO’s role. The allocation across departments or different parts of the organization was possible in some cases, and impossible in others. Sometimes it was just impossible to know exactly what the cost of a single report generation process was. In many cases, it was just a package – this is how much information systems cost.
In Cloud Computing environment, we can get closer and closer to paying for resources consumed by-the-resource, or by-the-package-of-resources. Allocation to different parts of the organization has become easier. Sometimes, it is presented transparently by the provider to the end user as part of the service.
If you use Infrastructure-as-a-Service for your R&D labs, who is the owner of the budget- is it the CIO or the R&D? And if your Quality Assurance department needs resources in the cloud – does it come out of the CIO’s budget, or the QA’s? And if you use some Software-as-a-Service solution to generate reports, and you pay per report – does the end user pay for that, or is it the CIO?
The new models allow clear and flexible cross-department charging for services and resources. However, the new models also create a situation in which the budget is not owned by the CIO, but by the departments across the organization.
Allocation and Ownership of budget may influence decision making. It may also reflect on the entire process of procurement and negotiating with the providers; which is getting more and more critical when parts of the information systems are moving to the cloud. One must remember that even in Cloud Computing environments the responsibility of the CIO and Information Systems managers wasn’t taken off their shoulders. Budget allocation should allow them to do their jobs.
If you move from owning your information systems to paying for the resources you consume, then your consumption of resources can have a direct impact of the budget you need. On a yearly basis, as well as a quarterly, monthly, daily or even hourly, depending on the model you will be using. So budget planning is of great importance, and details and specifics can make a huge difference. When you own your systems, and you run out of your planned budget, no additional resources will be purchased even if your users may enjoy some more computing power. However, when you’re in the Cloud, you can simply ask for more resources. Sometimes it’s the users who ask for more resources, sometimes it’s being allocated automatically. You have to plan for that and be prepared for that. You have to use what you need, and be prepared to pay for what you use. I wrote about the importance of Capacity Planning on another post. An additional thing to remember when planning your budget is that prices may change over time. Please do not forget that.
3. Management and Control
You have to manage your budget. You should do that on a yearly basis, on a quarterly basis, and on a monthly basis. Sometimes on a daily or even hourly basis, if you tend to have extreme magnitude peaks and you want to make sure you are within your budget. If you let people control what they consume, you have to control what you are expected to pay for that consumption. If someone in your organization is doing something that results in an over allocation of resources, you should be able to correct that as soon as possible. Don’t lose control over your budget. I believe that being able to say what is your current estimated bill is a good place to start. As a good practice, I recommend watching your current status on a regular basis, and if that’s not possible, sampling the weak spots, where the total prices can be flexible and highly sensitive to users’ activity.
In traditional models, organizations purchased information systems, sometimes using a very well structured procurement process; Sometimes things had a price tag on them, sometimes things had a price estimate on them. Some pricing models were simpler, some were more complex. Understanding the financial aspects of Information Systems was an important part of the organization’s decision making process.
In Cloud Computing, as-a-Service, the organization is using systems and resources, and depending on the pricing model – should actually pay for the systems and resources consumed. Different types of resources may be priced differently, different uses of the resources may be charged differently, and different commercial engagement may result in different pricing models. The organization should understand the financial aspects. The organization should be able to explain the budget paid for Cloud Computing based information systems. If your provider gives you a transparent and clear report – use it to understand what you are actually paying for.
Users should be aware of the impact their activity may have on the price the organization pays for its Cloud Computing resources. But it’s the CIO’s job to make sure they know that. The new concept should be explained, and users should know what is going on. It’s a pay for what you use model, and they, after all, are the users. Ask them not to over-require. Ask them not to over-purchase. Ask them not to over-allocate. Let them help with cost reduction, and with budget alignment.
Cloud Computing is a great enabler. In many cases financial aspects of Cloud Computing are a key in the decision made to start using the Cloud. I believe that some issues about financials and budget of Cloud based information systems should be taken care of, in order to help organizations maximize the value of Cloud Computing. Please contact me to let me know what you think about Budget Management in the age of Cloud Computing.