Getting private cloud? Better change your funding model


The traditional data center is a mishmash of equipment, tools and operating systems – and project-based funding is largely to blame. This budgeting anachronism was sustainable when servers were physical, but causes problems in a virtualized environment. It’s anathema to private cloud.

Transitioning to private cloud requires a chargeback funding model. Chargeback aligns with the dynamics of shared resource pools and facilitates both improved budgeting and planning along with more efficient resource consumption. 

Funding Physical Infrastructure

Organizations often start upon the virtualization journey with “low hanging fruit” servers and gradually work up to Tier 1 machines. IT tends to approach their mixed physical and virtual environments from a mostly physical perspective. Much of the architecture, tools, processes and equipment utilized to run the physical data center continue to be applied to the virtual environment. 

Some of these physical data center vestiges, such as traditional servers, backup products and security processes, may not be optimal for a virtual infrastructure – but they at least work. The outcome is  more painful when continuing to utilize project-based funding. 

Project-based funding generally includes an annual budget enabling current IT services along with projected growth. Business units requesting new applications or technology projects provide additional monies, but frequently insist upon the specific equipment they feel best meets their individual needs. Little importance is placed upon how the products interoperate with the data center environment as a whole.  

The result is a data center full of silos containing overlapping or redundant equipment that is both expensive and difficult to manage efficiently. Seventy percent of the  traditional IT budget goes just to “keep the lights on”. It is rather humorous to recall that Gartner’s number one energy saving recommendation at its 2007 Data Center Conference was to turn off servers that appear idle and see if anyone complains ( 10 ways to save energy in the datacenter). 

Funding Virtual Infrastructure

Project-based budgeting works in a physical data center despite the drawbacks because each business unit “owns” its servers and generally utilizes local or otherwise dedicated storage. But this model quickly becomes problematic as organizations virtualize.  

Virtualization eliminates the need to purchase departmental-specific resources. Business units can no longer even identify their equipment: Virtual machines migrate across hosts; storage moves between shared arrays; virtual switches direct and monitor traffic; and virtual load-balancers and firewall appliances replace their physical counterparts. 

IT fulfills new project requests by simply increasing resource pool capacity. At least, this is often possible in the initial stages of virtualization. But virtualized data centers become subject to a phenomenon known as Jevons Paradox whereby reduced technology costs lead to increased demand. User quickly figure out that IT can now “spin up a VM” rather than going through an extensive and expensive procurement cycle, and their server requests escalate.

As resources reach capacity, IT has no option but to ask the next service requestor to bear the burden of required expansion. Pity the business unit with a VM request just barely exceeding existing capacity. IT may ask it to fund a whole new blade chassis, SAN or Nexus 7000 switch.

This does not bode well for cloud. Rather than gaining instant and automatic access to the required infrastructure, the business unit either has to cough up the monies for far more capacity than it  requires, or wait until either the next business cycle or until other departments fund the purchase.

Private Cloud Advantages

Organizations implement private clouds for two primary reasons. The first, and most important, is the ability to align more flexible and cost-effective computing capabilities with facilitating business objectives such as increasing top-line revenues.  

The second major driver for private cloud is to remedy virtualization inefficiencies such as lengthy provisioning times. Sure, a virtual machine can be spun up in minutes, but putting it into production is a whole other matter. A 2011 study sponsored by CA Technologies, The State of IT Automation, showed that 47% of the virtualized organizations queried reported taking a week or longer to provision a virtual machine. In some extreme cases, departments frustrated by delays, have been known to revert back to purchasing cheap pizza box servers.  

Provisioning a production VM first requires that the requester obtain approvals. Then the server team needs to acquire the necessary LUNs from the storage group, the VLANs from the network team, and the firewall configurations from the security folks. Management, load-balancing and regulatory compliance requirements can cause further delays. 

A private cloud takes all of this process and standardizes, automates, and optimizes it in a repeatable manner. The time to provision a virtual machine, along with the associated storage, network and security components, decreases from days to minutes.

Funding Private Cloud

Virtualized organizations often utilize Capacity management in conjunction with modified budgeting processes to ensure adequate resources for upcoming projects. While this model can work well for a virtual data center, it is insufficient for private cloud.

The very definition of cloud, as stated by the National Institute of Standards and Technology (NIST), includes “measured service” as one of the five primary attributes. NIST emphasizes, “Typically, this is done on a pay-per-use or charge-per-use basis”. Yet a survey conducted late last year of 257 IT managers showed that only 40% of those with or planning private clouds had or were “developing some kind of chargeback method” (@joemckendrick 04/12/2012 ZDNet).

Another term for private cloud is IT-as-a-Service (ITaaS). IT must mirror public cloud providers by charging users for resource consumption. An effective chargeback environment reduces time-consuming negotiations and interdepartmental budgetary meetings. A BU purchases computing resources as needed and when the project completes, billing stops. Knowing resource costs in advance is advantageous for BUs in terms of budgeting and planning as well as in pricing products dependent upon IT capabilities.

Without the natural consequences resulting from a pay-as-you-go model, users tend to over-consume. A chargeback model drives efficiency because users naturally want to minimize their costs. When a BU manager sees, for example, that her department is being charged each month for the 20 VMs they no longer use, she takes the initiative to have them decommissioned.

Embracing Cloud Competition

Public cloud ensures the end of the competition-free environment that IT has enjoyed for decades. Business units are increasingly considering cloud-based alternatives such as SaaS and IaaS. IT, rather than fearing or resisting the public cloud, should embrace it by implementing an efficient and effective hybrid cloud strategy.

Providing an accurate chargeback model to make it easier for business units to compare internal costs with off-premise options. IT can lead the way by helping them evaluate which venues make the most sense for hosting various workloads while still ensuring corporate standards of performance, security, compliance and disaster recovery.


Link Alander, CIO of Lone Star College System; Rob Bergin @rbergin, a systems administrator at a Fortune 100 company; Thomas Gamull @MagicalYak at Presidio and Jeremy Oakey at Presidio all contributed to this article.


See Also:

Podcastwith VMware CTO, Steve Herod. 08/22/2012. Dana Gardner. BriefingsDirect.

The SoftwareDefined Datacenter. Video on

The New Challenges of Capacity Management In Virtualized Cloudy IT.06/11/2012. Taneja Group.

Virtual Machines put the ‘Fun’ in Dysfunctional. 05/22/2012. Enterprise Networking Planet.

Cloud Computing: Why You Can't Ignore Chargeback. 11/05/2010. Bernard Golden. CIO.

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2 Responses to Getting private cloud? Better change your funding model

  1. levine walters says:

    It is highly significant to put into consideration your budget in terms of acquiring or moving to the cloud system. I would like to share with you a good read on the factors to consider before moving to the cloud…Hope this helps your readers as well.

  2. Kathy@mozy says:

    I like your cartoon. It communicates your message clearly. It’s a lot more fun than a pie chart 😉 and easier to remember.
    Virtualization has a number of benefits. This is why more and more companies are starting to embrace it as the solution to many of the problems that they face.
    Charge back models work better when an organization is concerned about using its funds effectively.

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