using metrics to be.er discover, manage and charge for your cloud services Robert E Stroud CGEIT CRISC Vice President Strategy & Innova;on CA Technologies IT Business Management RobertEStroud
Robert E Stroud CRISC CGEIT Vice President, Strategy & InnovaAon IT Business Management Chair ISACA ISO Liaison Task Force Past InternaAonal Vice President ISACA\ITGI Contributor COBIT 4, 4.1 & 5 VALIT and RISK IT Past ExecuAve Board itsmf Intl. Treasurer and Director Audit Standards & compliance Former Board Member USA itsmf 15 years Banking Experience Author, Public Speaker & Industry GeeK 2 June 5, 2013
abstract Robert E Stroud CGEIT CRISC IT Professionals owen think of metrics as a means of measuring system performance, owen without a relaaonship to how those metrics are used to run the business. In this presentaaon, you will learn how to understand the business connecaon to IT metrics, how to idenafy what metrics are meaningful and appropriate, and the use of a suitable proxy for Service Management. This includes a review of how other technology industries use proxies for service measurement, management, capacity planning, and finance. 3 June 5, 2013
agenda Current industry trends and IT business model Analysis and discovery of services, metrics, and cost models How other industries calculate service costs and use proxies 4 June 5, 2013
current industry trends 5 June 5, 2013
what is changing? Top Issues for Enterprise IT in SHARE Survey 1. IT Cost Management 2. VirtualizaAon 3. Improving IT s value and deriving compe;;ve advantage from IT 4. Enterprise security 5. The aging and demographics of current IT staffs 6. Business conanuity planning 7. Cloud compu;ng 8. Regulatory compliance 9. ReinvigoraAng/repurposing the mainframe 10. Data center energy management SHARE conducted the survey of more than 160 of IBM s top customers to review the current state of enterprise IT in terms of where companies are putting the most resources and focus. Results of the study provide industry analysis to help SHARE better shape its programs and events for the greater member and enterprise IT community. The information also provides valuable insights to IBM and ISVs (independent software vendors) about issues that concern their customers the most. The survey was conducted during June and July 2010. http://vmblog.com/archive/2010/07/23/cost-management-virtualization-identified-as-top-issues-for-enterprise-it-in-share-survey.aspx 6 June 5, 2013
do you have an answer to these typical ques;ons? A department head is dispuang the IT cost allocaaon and looking for alternaave suppliers A large outsourcer offers a proposal to outsource the email service at $x per mailbox The CFO issues a noace of budget reducaon of five percent What is your most expensive service? You are reading about SaaS market rates and do not know your per unit cost, much less if it is compeaave What is your cost of running a report? 7 June 5, 2013
a simple business model $6 per kg 2 ½ Oranges per glass $50 per round 1 delivery per day $250 per year $50 per hour Ø What is the cost of delivering this? Ø What is the business value? Ø What is a fair price here? Should we charge per orange? Ø How is the service delivered? Do we need a model? $1200 per year 8 June 5, 2013
how it might look for IT... SoWware $6 per kg and plagorms 2 ½ Oranges per glass $50 Development per round 1 delivery per day $250 Running per IT year $50 Gold per hour 24/7 delivery Ø What is the cost of delivering this? Ø What is the business value? Ø What is a fair price here? Should we charge per orange? orange? Ø How is the service delivered? Do we need a model? $1200 Bronze per year 9-5 delivery 9 June 5, 2013
IT cost management, business value, fair price and transparency what do we need to know? What is the cost of delivering a service? What is the business value of a service? How is the service delivered, what are the components? How can we determine a fair price of a service? What are the units of measurement we use for our cloud service? Note: may be different for operaaonal performance and service billing 10 June 5, 2013
what is needed? How to define Services and Service Components? How to align these defininaons to a Cost model How can we use that cost model transparent IT Cost Model as well as the contractual obligaaons Project Licenses Hardware Service Desk Staff Service QA & Processes FaciliAes Customer Overhead Security 11 June 5, 2013
business blueprint for IT Virtually every product today has a service component to it. Many products are being transformed into services (servi;za;on of products). This is also true for IT. To understand how IT creates, delivers and captures value we need a Business Blueprint for IT mapping the service economy allowing us to do both full cost accounang as well as understand all contractual obligaaons. Full cost accounang is usually considered to be impossible to achieve without a good model of the service economy. Supplier IT Services Business Services UC OLA SLA Service Component Service Customer Supplier Service Component Service Cost Revenue Service Component 12 June 5, 2013
analysis and discovery 13 June 5, 2013
categories and alloca;on of IT costs Capital Investments Fixed assets, property, plant, and equipment Expenditures in maintenance, operaaons, systems, and equipment costs Can be challenging for businesses to allocate. There is owen a lack of effecave metrics There is a need for a method to allocate costs based on consumpaon by specific business units 14 June 5, 2013
what is service usage? Technical Metrics can be collected for: System usage Storage volume Network traffic Database size But to the internal consumer, external customer, or business manager, how do these relate to a specific service or even an applicaaon? Use a suitable proxy for the alloca;on of IT usage. Will enable the IT provider the capability to pass on their capital and operaaonal cost, plus a profit (if required), in an easy- to- sell package
common suitable proxies Airline charges are flat rate based on a route There is an internal metric called cost per available seat mile Electric power industry charges Kilowa. hour Car rental business Time metric rent by the day or week Distance metric mileage charge How many people have rented a car with a rate based on measurement of average engine RPMs? 16 June 5, 2013
Real requirement from the field The customer would like to charge his users of a cloud service based on CPU, memory and hard disk used. How can we take in feeds collected on resource ualizaaon and build the invoice? QuesAons: How do we calculate CPU usage of a cloud service to a user? Is it percentage of ualizaaon? CPU Ame? CPU thread count? What is memory usage? It is memory ualizaaon? Memory usage per process? What is the business relevance for this metrics in context of the consumer? 17 June 5, 2013
Amazon Elas;c Compute Cloud (Amazon EC2) how they are defined and measured Amazon sells their EC2 Plagorm by the instance Large Instance 7.5 GB memory 4 EC2 Compute Units (2 virtual cores with 2 EC2 Compute Units each) 850 GB instance storage I/O Performance: High Amazon EC2 Compute Unit The amount of CPU that is allocated to a paracular instance One EC2 Compute Unit provides the equivalent CPU capacity of a 1.0-1.2 GHz 2007 Opteron or 2007 Xeon processor 18 June 5, 2013
Amazon Elas;c Compute Cloud (Amazon EC2) how they are sold Source: Amazon.com 19 June 5, 2013
discovery and analysis Define your metrics or resource units Specific units of measurement for each service must be meaningful and appropriate to the business TIP: find a suitable proxy Determine your allocaaon method Best pracace keep it simple! SubscripAon based flat rate, Aered rate Usage based quanaty Ames price AllocaAon based assigned, weighted distribuaon Determine the appropriate data source Does the data exist in usable form? 20 June 5, 2013
challenges to success An organizaaon may not know their service definiaons No visibility into service costs, or an a.empt to make their cosang model too simple or too complicated An a.empt to use operaaonal or performance metrics when you should be looking at usage metrics QuanAty of help desk calls vs. first call resoluaon Technology someames gets in the way of any meaningful metric grouping Example: it can be difficult to calculate network bandwidth usage a.ributable to an individual user with an IP address obtained via DHCP 21 June 5, 2013
how do other industries calculate their service costs and suitable proxies? 22 June 5, 2013
airline industry cost example common usage metrics for analysis and comparison Available seat miles Measures an airline flight's passenger carrying capacity Equals the number of available seats mulaplied by the number of miles flown Cost per available seat mile Unit cost that enables airline comparison Expressed in cents to operate each seat mile Determined by dividing operaang costs by available seat miles 23 June 5, 2013
airline industry cost example common usage metrics for analysis and comparison The airline industry has decades of experience calculaang costs Industry average cost per available seat mile is $.1256 Source: Air Transport AssociaAon of America airline 2007 cost index composite data Expense Item Fuel Labor Rent and ownership Non- aircraw rent and ownership Professional Services Food and Beverage Landing Fees Maintenance Material AircraW Insurance Non- AircraW Insurance Passenger Commissions CommunicaAons AdverAsing and PromoAon UAliAes and Office Transport Related Other operaang expenses Total Composite Industry Unit Cost per ASM 3.25 2.96 0.89 0.56 1.04 0.19 0.24 0.19 0.02 0.06 0.15 0.12 0.1 0.08 1.72 0.99 12.56 24 June 5, 2013
airline industry cost example common usage metrics for analysis and comparison 2010 Selected Airlines Cost Per Available Seat Mile (including fuel) in cents American Airlines 12.84 Delta 11.84 US Airways 11.73 Southwest 11.27 AirTran 10.35 JetBlue 9.77 Virgin America 9.44 Source: Source: Massachuse.s InsAtute of Technology, MIT Global Airline Industry Program, Airline Data Project 25 June 5, 2013
power genera;on industry using a suitable proxy meaningful to the business Kilowa. hour (kwh) Unit of energy The power in kilowa.s mulaplied by usage Ame in hours A 100 wa. light bulb used for 10 hours will consume one kwh Energy bills include Power supply charge charges for fuel used to produce electricity and the purchase of power Delivery and system charges owning, operaang, and maintaining the electric system 26 June 5, 2013
power genera;on industry using a suitable proxy meaningful to the business The power industry uses the kilowa. hour as a proxy for the cost of the enare electric grid Long Island Power Authority ResidenAal electric rates October 1 through May 31 Delivery and system charges Service charge (per day) = $0.2750 Energy charge (per kwh) = First 250 kwh = $0.0857 Above 250 kwh = $.0787 Power supply charge Flat rate per kwh = $. 080170
cable television industry common metrics Television universe the total number of television households in the United States currently 115.9 million Number of Households total subscribers of a cable network Cable network coverage percentage of universe Homes passed total potenaal market of a cable operator Number of Subscribers customers of a cable operator Viewers total number watching a TV show RaAngs expressed in percentage of total households 28 June 5, 2013
cable television ra;ngs example for 10/16/2011 compared with top basic cable sta;ons Viewers 18-49 Program Net Time (000) Ra;ng Walking Dead AMC 9:00 PM 7257 3.8 MLB NLCS TBSC 7:57 PM 5938 1.9 REAL HSWIVES OF NJ BRVO 10:00 PM 3440 1.7 Walking Dead AMC 10:30 PM 2176 1.1 Boardwalk Empire HBOM 9:03 PM 2546 1 Robot Chicken ADSM 11:30 PM 1925 1 Sister Wives TLC 9:00 PM 2321 0.9 Watch What Happens Live BRVO 11:00 PM 2012 0.9 Chopped FOOD 10:00 PM 2186 0.9 KENDRA ENT 10:00 PM 1497 0.8 HALLOWEEN WARS FOOD 9:00 PM 2061 0.8 DEXTER S6 SHO1 9:00 PM 1502 0.7 TALKING DEAD AMC 12:00 AM 1161 0.6 LONG ISLAND MEDIUM TLC 10:00 PM 1456 0.6 INSIDE THE MLB TBSC 12:00 AM 1589 0.6 IRT DEADLIEST ROADS HIST 10:00 PM 1642 0.6 American Pickers HIST 9:00 PM 2110 0.5 MAKE YOUR MARK DSNY 8:30 PM 4020 0.5 JESSIE DSNY 7:30 PM 2948 0.5 SWEET GENIUS FOOD 11:00 PM 999 0.5 IGENIUS: HOW STEVE JOBS DISC 8:00 PM 1060 0.5 Network Name Households (000) Coverage % TBS NETWORK 101227 87.34% CNN / HLN 101102 87.23% THE WEATHER CHANNEL 101065 87.20% DISCOVERY CHANNEL 100891 87.05% NICK- AT- NITE 100699 86.88% NICKELODEON 100699 86.88% FOOD NETWORK 100639 86.83% USA NETWORK 100480 86.70% CABLE NEWS NETWORK 100413 86.64% TURNER NETWORK TELEVISION 100362 86.59% HEADLINE NEWS 100236 86.48% A&E NETWORK 100219 86.47% ESPN 100127 86.39% LIFETIME TELEVISION 100023 86.30% ESPN2 100005 86.29% SPIKE TV 99947 86.24% HOME AND GARDEN TV 99874 86.17% DISNEY CHANNEL 99861 86.16% TLC 99787 86.10% ADULT SWIM 99746 86.06% THE CARTOON NETWORK 99746 86.06% Source: TV By the Numbers 29 June 5, 2013
how basic cable services are sold wholesale RaAngs and coverage influence what cable networks charge cable operators for services Typically charge a flat rate per subscriber per month* ESPN $4.08 CNN.51 TBS.49 Nickelodeon.44 Discovery.33 AMC.23 TLC.16 * approximate charge from various sources 30 June 5, 2013
how consumers pay for cable TV XFINITY TV from Comcast 31 June 5, 2013
summary a few words to review Do not ignore the challenges to success Discover and analyze your services, service costs metrics, allocaaon method, and organizaaon model Choose an allocaaon methodology that is fair, equitable, easy to understand, and easy to implement Look at other industries for ideas of cosang models and allocaaon methods 32 June 5, 2013
ques;ons Robert E Stroud CGEIT CRISC Robert.Stroud@ca.com Twiier @robertestroud Blogs h.p://community.ca.com/blogs/itil h.p://community.ca.com/blogs/ppm 33 June 5, 2013