Hybrid IT is a bet that a combination of on-premises (on-prem) and public cloud will deliver more business value than a monoculture of one or the other. This bet can be for the short-term (an incremental step in your organization’s strategic plan for public cloud adoption) or long-term (your organization wants ownership and control of their IT investments). Regardless of timescale, you shouldn’t make this bet without understanding how to manage, plan, and optimize investments across on-prem and public cloud services.
You may not realize it, but your organization may already have the right mindset. Corporate IT may be debating IaaS/PaaS choices to supplement or replace on-prem IT, but lines of business are already all-in on the cloud. Your finance team uses cloud-based ERP, Marketing and Sales use CRM, and your PMO leverages its own collaboration and work management SaaS. In other words, your business partners have already decided that the cloud is part of their IT landscape.
If your business partners have embraced the cloud, IT must too—or risk irrelevancy. Hybrid IT is now the default delivery model of IT solutions, and IT leaders are embracing this shift by adopting a purpose-built system of record.
The challenges of hybrid IT cost management
1. Cloud sprawl drives runaway costs
Cloud costs and usage are buried in monthly billing detail across multiple providers, accounts, teams, and business units. This mass of billing detail, dispersed across the enterprise, makes it hard to identify the business partners who drive budget overruns.
When public cloud bills aren’t fully burdened, the true cost of cloud isn’t a brake on cloud sprawl. Public cloud bills aren’t burdened with labor, security, and other costs required to maintain cloud services. A system of record must show a fair comparison between on-prem and cloud solutions. Without fully-burdened cloud spend, you are comparing apples-to-oranges—and setting yourself up for spend surprises when actuals come in.
Public cloud costs are driven by consumption. Favorable pricing from volume discounts and reserved instances is undercut with best-guess estimates of optimal instances, sizes, and the right services. Public cloud adoption is an incremental process and spend will vary. To rely on opportunistic discovery of underutilized and inefficiently deployed resources puts IT in a bind. If cloud services have been pre-paid, you’ll be forced to change behavior to accommodate your financial commitment. Pay-as-you-go gives you the agility you want, but at unfavorable unit rates.
To cut sprawl and optimize public cloud spend, aggregate public cloud billing detail into standard categories for real-time spend management. A system of record for hybrid IT must:
- Automate ingestion and aggregation of public cloud bills
- Monitor cloud spend in real-time to identify and manage irregularities
- Incorporate fully burdened cloud spending based on industry-approved standard
- Recommend potential cost savings with underutilized or inefficiently deployed resources
2. Misinformed investments drive inefficiency and waste
Distributed views of infrastructure and cloud assets force decision-making with incomplete data. Public cloud billing is loaded with operational data, but light, in lieu of a good tagging strategy when it comes to communicating which parts of the business it supports.
On-prem infrastructure costs are fixed in a depreciation cycle, but apples-to-apples comparisons with public cloud need the fully burdened cost of on-prem applications and services. The purchase cost (and financial treatment) of an asset is easy to track but burdening the appropriate costs to each on-premise application is not. Fully-burdened app TCO (total cost of ownership) needs labor, help-desk, and underlying infrastructure costs; none of which will be found in your general ledger or operational data. You must combine these siloed data sources to build a cost model to capture ongoing app TCO.
Organizations burden their decisions with added risk then they make investment decisions with incomplete data. Informed decisions require a fair comparison between public cloud and on-prem options. The comparison won’t stand up if the data isn’t there to back it up. Providers of infrastructure-as-a-service and platform-as-a-service claim a 30-40% cost saving compared with on-prem alternatives. A healthy attitude of “trust-but-verify” requires organizations to cost out their current on-prem solutions to justify and prioritize migration decisions (e.g., maintaining data centers versus moving to the cloud).
To make informed decisions, deliver comprehensive cost analysis across public, private, and on-prem infrastructure investments. A system of record for hybrid IT must:
- Compare infrastructure spend across cloud and on-prem services
- Calculate infra unit costs with defensible cost burdening (e.g., labor, support)
- Normalize infra costs per application and service across public, private, and on-prem infrastructure
- Allocate costs derived from the financial ledger to hybrid assets
3. “Free” IT delivers unaccountable consumption
Business units (BU) are unaware of the costs of their IT decisions. With infrequent communications of costs (or a singular line item in their budget to corporate IT), BUs have no visibility into what’s driving charges and consumption of cloud and on-prem infrastructure. When it’s all normalized into one view, BUs see IT costs without any options to change it. This is an opportunity-cost for public cloud (where costs are primarily driven by consumption) and on-prem infrastructure (where older platforms incur a high amount of capital expense overhead).
Automated showback or chargeback shapes business demand by communicating the true costs of IT services. Preferred services are promoted through incentivized pricing while expensive legacy applications are pushed into retirement with the full burden of old infrastructure and expensive maintenance.
»Related content: 5 priorities for an effective cloud migration strategy
To manage supply and demand, leverage showback and chargeback to influence demand and consumption. A system of record for hybrid IT must:
- Automate showback and chargeback of costs and services
- Set service pricing based on true costs
- Identify inefficiently deployed or underutilized infrastructure assets
Without a system of record, you risk piecemeal management of public cloud and on-prem IT resources. Operational and financial data for on-prem solutions have to be translated into an apples-to-apples comparison with public cloud service spend and that comparison needs to be constantly fresh. This is a multi-step process not helped by siloed data sources.
Calculating the TCO of on-prem applications and services isn’t a back-of-the-napkin exercise. You need a defensible cost model built with operational and financial data. Public cloud costing costs, on the other hand, appear simpler. However, the fully burdened cost of public cloud doesn’t appear on a cloud bill. You need a fair comparison between on-prem and public cloud options to monitor cost, identify opportunities for optimization, and quantify the business value of IT delivered services.
If you are serious about hybrid IT, you have to be serious about managing it. Adopt a system of record.
»Download these eBooks to optimize hybrid and cloud by right-sizing legacy spend, shifting savings to innovation and efficiently embracing cloud:
- Eliminate cloud sprawl
- The essential guide to building a cloud center of excellence
- Forrester report: Build a pragmatic cloud strategy that delivers real value to your organization
»Read next, on Emerge:
- Here's what's exciting us about cloud in 2019
- Benefits and challenges of multi-cloud strategies
- Making the most of your cloud infrastructure