Cloud Choices- Quantifying the Cost and Risk Implications of Cloud.pdf

© 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved.
John Enoch
Principal Technical Business Development Manager, Amazon Web Services
Mark Trevor
Partner, Cushman & Wakefield
Cloud Choices: Quantifying the Cost
and Risk Implications of Cloud

Your next 40 minutes: What to expect
• Transformational IT projects statistically fail:
Why? Is failure an option? What is your risk appetite?
• Perception of problems determines outcomes:
How can organisations best approach cloud adoption as a key decision?
• Methods for quantifying cost, risk and value:
How to mitigate risk and reduce cloud migration costs? Example: Data
Centre exit. Presented by Mark Trevor, Partner Cushman & Wakefield

Cost & Risk in Cloud Choices:
“How you think is what you get”

Alan Shepard,
Apollo 14 Astronaut
“ It's a very sobering feeling to be
up in space and realize that
one's safety factor was
determined by the lowest bidder
on a government contract.”

Is your status quo disrupted (even sustainable)?
Big IT platform
Small cloud
2018 2021
? ?
Status quo Evolution Transformation
Small IT platform
Big cloud

Playing the house. What are your odds in IT?
Standish Group’s Chaos Report
Source: Standish Group Chaos Report: Decision Latency Theory, 2018
• Success = delivered on
[time, budget, to
expectations]
• Validates “Keep IT
Simple” thinking
• Decision speed is critical

Value in Decisions: Speed > Quality
Decision
Latency
Source: Standish Group Chaos Report: Decision Latency Theory, 2018
https://en.wikipedia.org/wiki/OODA_loop
Entropy

7 Cloud Choices that impact RISK
1. Focus on technology, not business impact
2. Accountability and KPIs
3. Learnings (reflected in the business case)
4. Importance of planning head
5. Stakeholder consensus
6. Leadership: managing & motivating
7. Execution capabilities: talent, tools & techniques
Discenza, R. & Forman, J. B. (2007). Seven causes of project failure: how to recognize them and
how to initiate project recovery. Paper presented at PMI® Global Congress 2007—North America,
Atlanta, GA. Newtown Square, PA: Project Management Institute.

Your decisiveness (i.e. decision latency) is… ?
0%
20%
40%
60%
80%
100%
LEADERSHIP
BUSINESS CASE
TEAM CONSENSUS
ACCOUNTABILITYURGENCY
IMPORTANCE
CAPABILITY
CHANGE READINESS SELF-ASSESSMENT
AWS tool: Can we help?

Customers that AWS supports with a
business case adopt cloud about
60% faster than those who don’t.

HOW?
WHY? WHAT? WHEN?
Change IT platform? Cloud?
“Hybrid”?
On-premise?
Which partner(s)?
Capability & systems upgrades?
Application due diligence?
Governance?
Project planning?
Which supplier(s)?
Where is the customer in their decision cycle?
Analysis:
Cost, Risk, value?
Window of opportunity?
Important to Urgent?

Cost & Risk in Cloud Choices:
“How you act is what you get”

Challenge linear progression maturity models

How suppliers think about you = how they act
“For decades, we have relied on the
old, sequential lifecycle model to
help plan and budget our activities
in each stage, moving customers
sequentially across each of those
stages.
Now that our buyers have higher
expectations and are self-
educating, our marketing needs to
become more personalized and
respond to individual behaviors. ”
https://blog.marketo.com/2016/11/the-evolution-of-the-customer-lifecycle.html
Relationships are
iterative & agile

0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7
Total in-house cost per year Total AWS cost per year
Total in-house cost to date Total AWS cost to date
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
RESERVED
INSTANCES
SPOT
INSTANCES
Illustrative
TCO, trade-offs and tipping point

APPLICATION
CHOICES
INFRASTRUCTURE
INFLATION
PEOPLE & TALENT
INNOVATION
DECOMM
INSURANCE
PROCUREMENT
Cost

• Financial metrics (ROCE,
EBITDA…)
• Security posture
• Cost of change/inertia
• Talent &
Knowledge
• Org. Change
• “Lock-in”
• IT Assets: Gap between Book & Market value
Risk

APPLICATIONS
INFRASTRUCTURE
CULTURE
PEOPLE & TALENT
FINANCE,
GRC
SUPPLIERS
BUSINESS
INTELLIGENCE
LEADERSHIP
Productivity

Methods for Measuring
“What you inspect is what you get”

Arthur Stephenson,
Chairman, Investigation Board
“The 'root cause' of the loss
of the spacecraft was the
failed translation of English
units into metric units”

AWS Cloud Economics Tools & Method
ANCHORING THE
BUSINESS PROBLEM
RISK APPETITE
AND DECISION
CULTURE
21
VALUE ANALYSIS
AND CLOUD
ECONOMICS
APPLICATION
MIGRATION
ANALYSIS
3 4
STRATEGIC
DECISION
OPTIMISATION
& BENEFITS
REALISATION
5 6
Problem & Objectives…. Options & Outcomes…. Trade-Offs & Tracking

Which IT
Platform?
How to use
IT?
How to exit
legacy IT?
Cost
Reduction
Agility
IT
Performance
Productivity
Structuring cause & effect in a decision
Decisions Uncertainties Value Outcome
Operate
Customer
Needs
Business
Case
Change
Project
(discovery, plan,
Design, Build)

E.g. A systems view of Mass Migrations
Which IT
Platform?
How to use IT?
How to exit
legacy IT?
Cost
Reduction
Agility
IT
Performance
Productivity
Customer
Needs
Business
Case
Innovation
Operate &
Optimise
Decision
Outcome
Uncertainty
Change Project
(suppliers, discovery, plan,
design, build)

1. Measure Impact
Operational
Financial QRM*
*QRM: “Quality and risk management”
QRM*
K
P
I
s

2. Optimise Cost & Usage
a. Change Org. Process?
b. Exit legacy IT assets? Retire apps?
1. Pricing: Cost vs Commitment
Reserved
Instances
On
Demand
Spot
2.Transparency:
Tag,
Trigger,
Report,
Automate.
3. Key Decisions

MARK TREVOR
Partner
Data Centre Advisory EMEA
Mobile: +44 (0) 7770 851811
Mark.trevor@cushwake.com

The common problems up close
“I want to move to the
cloud, but it will mean
that I have to write off
value of existing
assets”
“The risks
surrounding cost,
migration and
security make it
impossible to make
the move”
John Slide.
Turn into infographics

But…businesses have to understand
WHERE DOES THE STATUS QUO BECOME
IMPOSSIBLE TO WORK WITH?
IS MOVING TO THE CLOUD RIGHT FOR YOU?
…NOT ALWAYS

The lifecycle of an IT asset
1
34%
2
66%

Data Centre Utilisation
John Slide.
Mark and John to work on

The prospect of data centre under utalisation is common
COMMON SITUATION:
An organisation owns (or leases) and operates its own
dedicated data centre
That organisation’s IT strategy is a partial migration to
Cloud (or just a general reduction in IT load needs)
Concerns: Significant under utilisation of available IT
capacity with no linear reduction in annual opex and
continued capex investment.
Solution: Either continue to run dedicated facility or
migrate non Cloud applications to 3rd party operated
colocation facilities.
Blockers: Cost & risk of migration and recovery of Net
Book Value of data centre investment leading to potential
write off from balance sheet (RICS Red Book Valuation).
1001
951
903
858
815
775
736
699
650
750
850
950
1050
1150
£0
£1,000,000
£2,000,000
£3,000,000
£4,000,000
£5,000,000
£6,000,000
FY2019
FY2020
FY2021
FY2022
FY2023
FY2024
FY2025
FY2026
kWutilisation
TotalannualCashFlowandProfit&Loss
KW utilisation reduction and corresponding costs
Cash Flow Profit & Loss
Wholesale Base kW Utilisation

So key considerations to consider when assessing
YOUR IT project
There IS a way out
How to realise the true value of an data centre asset
1
STEP 1
Integrate your IT, business and financial objectives for the project in question
How much capacity are you looking to retain and for how long?
Example Objectives Targets
1 Reduction in annual operational costs of the data centres >=20%
2 Further capital expenditure on the data centres =£0
3 Recovery on current investment >=NBV
4 A more on-demand, agile, and cost efficient infrastructure PAYG
5 Elimination of migration risk =0

YOUR IT project
There IS a way out
2
STEP 2
Establish current Total Cost of Ownership is key benchmark
1.10 2.59 4.52 6.34 7.99 9.27 10.73 12.994.11 8.70 13.82 18.94 23.97 28.74 33.80 36.68
2.29 4.67
7.24 9.72 11.87 13.99 16.10 17.63
5.30
10.78
16.55
22.31
27.86
33.47
39.17 41.31
0.00
50.00
FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026
GBPm
Cumulative Cashflow and Profit & Loss (GBP)
CF - Inc Customer Revenues CF - Ex Customer Revenues
P&L - Inc Customer Revenues P&L - Ex Customer Revenues

YOUR IT project
There IS a way out
3
STEP 3
Set scenarios and TCO analysis of those that could meet one or more of key objectives
eg:
1. Sale and leaseback investment
2. Colocation provider model
3. Sale and ‘leaseback’ required capacity

YOUR IT project
There IS a way out
4
STEP 4
Establish the potential value of the data centre asset from business
generation perspective modelling success of an operator:
• Conservative
• Possible
• Optimistic
Set IRR range to establish ‘surplus’ or potential asset value

YOUR IT project
There IS a way out
5
STEP 5
Through RAG analysis of each
scenario establish optimum
scenario that meets key
objectives.

YOUR IT project
There IS a way out
6
STEP 6
When to implement?
Establish capacity ‘tipping point’

Thank You
johnenoc@amazon.co.uk

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Cloud Choices- Quantifying the Cost and Risk Implications of Cloud.pdf