Chargeback in a Cloud and Non-Cloud Environment, IAITAM ACE

Chargeback in a Cloud/Non-Cloud Environment

ITFMA

San Antonio, TX, July 22nd, 2011

Eistein Fosli
Founder, Open iT, Inc.

Copyright OpeniT, Inc. All rights reserved

Agenda

• Introduction

• Cloud Computing

• Chargeback in Cloud/Non-Cloud Environment
– Target
– Define
– Test
– Deploy

• Conclusion

1

About the Speaker

• Eistein Fosli, Founder Open iT, Inc.
Through his experience working for the University of Oslo and Hydro ASA, and
later as an IT consultant for several larger corporations (including Statoil, Shell
and Telenor), Fosli saw the need for better IT metering tools, particularly for
software license management. In 1999, he founded Open iT, Inc., which
creates software used widely for usage metering, competence planning and
cost allocation management.

• Eistein Fosli received his Master of Computer Science degree from the
University of Oslo, Norway.

• Contact info: Eistein Fosli, Open iT, Inc., 1155 Dairy Ashford, Houston, Texas
77079, Email: fosli@openit.com

2

About the Company

• Open iT, Inc. - independent
software vendor, founded
1999, located in the Americas,
Europe and Asia.

• Open iT creates software for IT
resource monitoring, reporting
and optimization. Companies
around the globe use Open iT
to reduce the cost and complexity of managing corporate assets.

• Open iT has extensive experience serving customers in a variety of
verticals like: Electronics, Telecom, Energy, Insurance, Automotive and
R&D.

3

Cloud Computing

From Wikipedia:

The underlying concept of cloud (utility) computing, dating back to the 1960’s, was
presented by John McCarthy at MIT, but neither hardware nor software was ready for
computer time-sharing back then.
In 1997, the term "Cloud Computing" was introduced (originally from diagrams
depicting telephone networks as “clouds”).
The service did not become publicly available until Amazon launched Amazon Web
Service (AWS) in 2006.
Today you can choose
between a number of
providers and platforms

4

Business model
• A cloud can provide:

– IT infrastructure (for example, computer servers and storage), or infrastructure as a service
(IaaS);
– An application runtime platform, or platform as a service (PaaS); or,
– Subscription-based software, or software as a service (SaaS).

• IT services delivered as cloud services typically have the following
characteristics:

– A pay-as-you-go model with minimal or no upfront costs.

– Usage-based pricing, so that customer costs are based on actual usage.

– Elasticity, so that customers can dynamically consume more or less resources as and when
they need it.

5

Business model (2)

• How is cloud computing charged for?

– Fixed monthly fee or “pay as you go” for usage of: small, medium, or large instances.

– Classification of small/medium/large instances is based on:

• CPU
• Ram
• GB storage
• B/W

– Adding on other factors, such as security, SLA level, support
level, encryptions, compression, and WAN services.

6

Cost of running a sample 50,000 node cloud:

8

Players

Service providers: Platforms:

• Amazon • Abiquo[7] • Mezeo (Storage
only)[14]
• ElasticHosts • AppScale[8]
• OnApp[15]
• Microsoft Azure • CA 3Tera AppLogic
• Logicworks • OpenNode[16]
• Cloud.com (formerly
• Google.[1][2] VMOps[9]) • OpenStack.org
• Joyent[3] • ElasticHosts • Parallels
• Jitscale ElasticStack[10][11]
• Joyent
• Linode • Enomaly ECP
• VMware vCloud
• Maximizer Software • Eucalyptus
• Witsbits Go Cloud[17]
• Rackspace Cloud • Flexiant Extility[12]
• Zimory[18]
• Salesforce
• Gluster
• Skytap
• InContinuum
• Workday CloudController[13]
• Nimbus (cloud
computing)

9

Said about Cloud/Chargeback

The bill of IT Internal customers Chargebacks have
for each can look at what been a bone of
entity is they pay for: contention
valuable. servers, compute forever, and the
time, storage, etc., advent of cloud
Debe and compare it to services really
Gash, CIO, Sain
what Amazon forces the issue.
ts Luke’s Health
system charges. It puts IT in
an uncomfortable Julio Gómez, co-
founder of
position.
Innovation Councils
LLC
Julio Gómez, co-
From its ability to break down IT founder of Innovation
silos to its flexibility, efficiency, and Councils LLC
democratization around resource
allocation, resulting in agile IT
service delivery, cloud computing
changes the way we do business and
engage with each other.


Chargeback


Implementing chargeback: The Process

• List the target (goal) and plan the
Target process

• Update Service catalog (internal/external)
Define and customers (cost centers)

• Test the model on last year’s data
Test

• Full-scale deployment
Deploy

12

Target


Overall Goal

• Easy to communicate and easily understood by the business.
– Simple and transparent

• Easy for IT to manage, control, and verify.
– We are looking for an automated system

• Considered fair by most business users.
– See next slide

• Encourages optimized (IT) resource usage.
– See next slide

14

Fair

By fairness, I mean avoiding situations such as:

“A user of the software using it for 8 hours on Sunday afternoon pays the same
as a user utilizing 8 licenses for one hour during peak time.”

15

Optimize Resource Usage

• Determine the best allocation model to avoid counter-productive behavior.

– Example from “Customer A”. “Customer A” has a prior chargeback system in place, based on
elapsed time only, which means leaving software on can be expensive for an end-user. This
may encourage some counter-productive behaviors, as seen in the following examples:

• Starting up the application OpenWorks and loading in a dataset typically takes 30 minutes. The customer’s agreement
with the software provider is based on the number of desktop counts, so customer A won’t save money if the user logs
out every night and starts up the project again every morning. Charging by elapsed time (without any filtering) may
lead to counter-productive behavior from the end-user, by losing 30 minutes of productive work every day.

• A better approach is in this case to charge for distinct users.

16

Define


The Process

Chargeback process

Cost Generators Cost Centers

Departments
Software

Companies
Network
Servers
Facility

Projects
Staff

18


List Cost Centers

• List cost centers and determine how to assign usage to them:

– Organization of users as defined in the HR system (such as SAP’s HR module).

– Hostname of the computer used to run the service. Hostnames may contain strings, such as
the airport code of the closest airport, to make identification easier.

– A “Project_ID” or cost center code set by the user before he uses a service.

– Other factors such as environment variables in a user environment.

19

Units (cost of what?)

Which units are needed? Example units:
Units Definitions
max dev Maximum concurrent # users
max user Maximum concurrent # devices/computers
d_user Distinct # of users
d_dev Distinct # of devices/computers
elapsed Elapsed time
a_dev All users that have access
a_users All devices that have access

20

Grouping and Filters

• Grouping:
– Feature to Feature set (as they appear in the vendor price book)

– Users to organization (hierarchical) , or professions, or …

– Computers to locations

– Labels

• Filters:
– Threshold filters

– Unique or max in use

– Primetime/holiday

– Ad Hoc

22

Allocation Models

Sample allocation models:
Allocation Code What it More precisely
means:
MC-UG-DP(A)- Day Max Max Concurrent per User Group per day
F5 Concurrent averages it over the whole billing cycle.
Users per (P=Exclude Weekends and public holidays).
User group NF means no filtered. F10, means ignore
license checkouts or processes lasting
shorter than 10 minutes.
DU-UG-DP(A)- Daily Distinct users per day averaged over the
F15 Distinct whole billing cycle. (P=Exclude Weekends
User per and public holidays).
User group

ELAPSED-NF Elapsed time for the whole billing cycle. Non
Filtered

Copyright OpeniT, Inc. All rights reserved 23

Update Service Catalog

• IT lists the offering in the service catalog to standardize IT services and costs.
The purpose is to standardize definitions, specify the charges and let the
customer decide what he wants and how much he wants to spend. Instead of
viewing the customer as someone always wanting more, you give him a menu
of choices to choose from.

• When implementing an automatic chargeback system, you may or may not
already have a service catalog in place. If you do not, making a Service Catalog
is a good place to start.

24

Update Service Catalog

• For each item in the Service Catalog:
– Define rate and unit (cost of what?), the resolution (time period), and the billing period.

– Combining Usage and the Service Catalog, creates the invoices

25

Monthly Invoicing?

How often will you invoice? Most commonly every month a new invoice is
generated.

26

Year End Reconsolidation

• Using fixed rates for the entire period, without knowing exact usage, may lead
to profit or loss for a particular service. As most IT departments are prohibited
from either accumulating a loss or a profit, this must be calculated, typically
once a year, and paid back or charged extra from the business units.

• Instead of reconciling each service item, it is the total amount, or a group of
service items, that needs to be reconciled. This is handled by using a Profit &
Loss Statement, which is designed for this purpose.

27

Test and Deploy


Try first– deploy later

• Determine the allocation model and calculate the unit cost based on last
year’s data.
– For the next year of data, calculate the unit cost based on usage, e.g. from Nov. 1, 2010 to
Nov. 1, 2011. Do a manual check and get approval from the CIO. Some manual adjustments
may be done to encourage a certain behavior. The usage of the application also determines
how much of the overhead cost the application will shoulder.

• Update the tariffs and allocation model into the table for the tariffs.
– Each WBS (or Material IDs) will be associated with an allocation model and a cost-per-unit for
the chargeback.

29

Chargeback in the Cloud


Why not just echo the cloud bill to the end user?

• Charge for internal and external usage at actual cost:
– What if using internal resources are cheaper for the company but
more expensive for the end user?
• Equipment and Software already have been bought, and need to be paid for
anyway? «Do things as
simple as
possible, but
• Charge only for ”cloud usage” not simpler.»
– Fixed price for all – only cloud users will be billed per use.
• The unlucky one being thrown out in the cloud, has to pay, while the others get a
”free lunch".

31

Make a unified chargeback process

Chargeback process


Departments
Software

Companies
Network
Servers
Facility

Projects
Staff

32


concurrency
cost calculations distribute
calculation
•Raw data •Min/max/ •cost
•filtered avg. per •PPU values •invoices
raw data hour/day/ values
threshold month/
unique
ad-hoc and year. Creating invoices
ppu calculations
filter
(tokens)


Departments

Companies
Software
Network
Servers
Facility

Projects
Cloud
Staff

33


Conclusion
• Chargeback of cloud resources
– Integrate it with your enterprise chargeback model.
– Treat it as just another cost (like any “on premise” costs).
– Make sure your chargeback system can read the cloud invoice (you need all the
details as input to your enterprise chargeback).

• Advantages
– You will enable your own policy of the cloud usage, enforcing behaviors that gain
the whole enterprise.

• Try!
– Test your model with the last year of data.
– Make sure to have enough flexibility in your model to be able to adjust it as you go.

34

Open iT, Inc.

Two Park Ten Place
Thank You!
16300 Katy Freeway
Houston, TX 77094
+1 281-599-3400 Open iT solves IT resource
monitoring, reporting and
Karoline Kristensens v. 5 optimization challenges to
N-0661 Oslo, Norway reduce the cost and
+47 22 20 40 50 complexity of managing
assets in distributed and
PO Box 265 Forus complex environments.
N-4066 Stavanger, Norway
+47 51 64 09 80
III
Insular Life Bldg.
Tagarao St, Lucena City
Email me at:
4301 Philippines
+63 42 710 8566 Fosli@openit.com

www.openit.com

If you can measure IT,
you can optimize IT!

Thank You!
Open iT, Inc.

Two Park Ten Place Open iT solves IT resource
16300 Katy Freeway monitoring, reporting and optimization
Houston, TX 77094
challenges to reduce the cost and
+1 281-599-3400
complexity of managing assets in
Karoline Kristensens v. 5 distributed and complex environments.
N-0661 Oslo, Norway
+47 22 20 40 50

PO Box 265 Forus Email me at:
N-4066 Stavanger, Norway Fosli@openit.com
+47 51 64 09 80

Insular Life Bldg.
Tagarao St, Lucena City
4301 Philippines
+63 42 710 8566 If you can measure IT, you can optimize IT!
www.openit.com

36

Appendix


Define
Technical implementation


Open iT dataflow
• Open iT collects, stores and combines information in a single unified way.
• Provides dynamic link into an Excel sheet.
• High level overview: Raw data is stored as is, but also aggregated for fast
reporting.

SC

39

How the calculation is done

concurrency
cost calculations distribute
calculation
•Raw data •Min/max/avg •cost values
•Filtered raw per hour/day/ •PPU values •invoices
data month/ and
year.
threshold
unique ppu calculations
ad-hoc Creating invoices
(tokens)
filter

40

Target

• Develop a more predictable chargeback model for end users.
– In the current model you may have the following scenario: If in one month, you
only have one user of an application, that user gets the entire bill for the
application (or WPS). That makes chargeback simple, but very unpredictable for the
user. However, other people’s usage could be represented in the future rate of the
software.

• AKA: If you are the only one in the bus – you shouldn’t have to
pay for the all the empty seats, should you?

41

Chargeback in a Cloud and Non-Cloud Environment, IAITAM ACE

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