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How to Create a More Accurate, Useful, and Equitable Service Costing Process

By Khalid Hakim

In my last post, I described the pressing need for a more effective IT service costing process (as a solution to the pressing need for tighter business/IT alignment!). The question now… is how.

How can companies create a service costing process that is fast, accurate, transparent, granular, fair, and consistent—without introducing yet another time-consuming and expensive project to the IT docket?

To answer this question, I’ll use a real-world example—a company that has recently been through the process and achieved excellent results.  I won’t name the company but I can assure you it’s a real enterprise, and the results were also quite real. I’ll refer to it as “The Company.”

In the past, The Company charged for IT services by simply allocating the total IT costs among service consumers based on the number of desktops and laptops they used. This “lump sum” cost allocation of course led to the perception that “IT is always expensive.” The Company knew it needed to move to a more service-oriented, customer-centric model.

Our team provided guidance in setting up a better service costing process. The implementation began with three key steps:

1. Create a service-based cost model diagram.
A cost diagram depicts the flow of IT costs from the general ledger or cost sources all the way to the services being provisioned—in such a way that IT can present consumers with a statement showing all service costs.

2. Develop a service-based cost allocation strategy.
The Company already had a cost allocation process in place, but it did not deal with service-to-service cost allocation. So The Company’s lump-sum allocation did not demonstrate any IT value but only the cost of IT when running the business. That’s why a service-to-service costing method was needed that would account for everything:

  • Servers and their related hardware
  • Network and security allocation to servers
  • Data center, storage and data center facilities costs
  • Software and enterprise license agreements
  • Support and operations contracts
  • IT project costs
  • Labor costs
  • IT overhead

This way The Company was able to fully load IT costs into services being delivered and transfer these costs to the business.

3. Develop a service-based cost classification strategy.
The Company classified all IT service costs into the following categories:

  • In/Out Service Costs: All direct service-related costs should be part of a service cost, while non-related service costs should be part of accounting period costs.
  • Fixed vs. Variable costs. Variable costs vary based on usage or time (i.e. data center utility bills, support tickets, or service consumption). Fixed costs are fixed regardless of service or resource usage (i.e.  software license costs, hardware purchases and support contracts).
  • Direct vs. Indirect. A direct cost is directly related to a service and can be easily traced. Indirect costs are indirectly related to a service and are typically spread over a number of services.
  • CapEx vs. OpEx. Capital expenditures are major expenses incurred whose costs have to be depreciated (split over) over the useful life of an IT asset, while operational expenditures are incurred periodically.

After the strategic IT/business processes were carried out, service-specific tasks began. These included defining and charting individual services, developing service-specific cost packages, and tracking and managing service costs over time.

Next it was time to consider the “people” aspects of service costing. Technology cannot provide a solution on its own; it must be developed and deployed in conjunction with stakeholders.

Along the same lines, handling IT financial management (ITFM) activities is not a one-man show. At The Company, the following roles were defined, along with specific responsibilities:

  • Financial Controller
  • IT Financial Manager
  • Service Manager
  • IT Manager
  • CIO
  • Customer Relationship Manager
  • VP of Infrastructure Services

Developing a roles/responsibilities chart (known as a RACI) then provided a concise and easy way to track who does what along with the level of contribution and accountability.

Next came identifying the right technologies to use in the service costing process. In this case The Company made a strategic investment with VMware and deployed the VMware IT Business Management Suite. This is the technology that will help them gain cost transparency, align with the business, enable the CIO’s transformation agenda, and control and optimize the IT budget and costs.

In addition, The Company has implemented basic CIO and Service Manager dashboards to provide insight into the financial performance of all managed services. The dashboards define the visual layout of the user experience. Each dashboard is composed of frames that display customized information designed for the intended user. The dashboards enable the CIO, IT Financial Manager, and Service Managers to gain access to cost information and make data-driven decisions.

SCP white paper coverToday The Company’s IT department is well on its way to being more business-oriented and service-oriented through better service costing. The Company can now trace IT costs from general ledger all the way to all business units consuming IT services. The new costing model also lays out the key roles and responsibilities, and VMware technology helps provide cost automation, transparency, and service-based cost modeling.

I’d encourage you to get full details about the service costing process outlined in this blog post by reading my white paper, Real IT Transformation Requires a Real IT Service Costing Process.”

Until next time—may all of your IT service costs be allocated with fine granularity and full transparency!

Khalid Hakim is an operations architect with the VMware Operations Transformation global practice. You can follow him on Twitter @KhalidHakim47.

VMworld-graphicAnd if you’re heading to VMworld, don’t miss Khalid’s session #OPT1572!

Accelerate Your IT Transformation — How to Build Service-based Cost Models with VMware IT Business Management (ITBM)
A recent VMware survey showed 75% of IT decision makers list the number one challenge in IT financial management as lack of understanding of the true cost of IT services. ITBM experts and VMware Operations Transformation Architects Khalid Hakim and Gary Roos shed light on this alarming figure, and give practical advice for obtaining in-depth knowledge of the cost of IT services so you can provide cost transparency back to the business.

When you visit the VMworld 2014 Schedule Builder, be sure to check out the SDDC > Operations Transformation track for these and other sessions to help you focus on all the aspects of IT transformation.


How to Drive Tighter Alignment Between Business and IT

Many IT stakeholders have limited trust in the IT organization as a result of the way it has operated in the past. In this short video, Kevin Lees shares tips on how IT can deal with this real-world problem that is almost always overlooked.

Kevin Lees is principal architect of the VMware Global Operations Transformation Practice. Coming to VMworld? Don’t miss his session OPT1547 – Organizing for the Software-Defined Data Center (SDDC): Practical Advice for Practitioners

Driving Biz Alignment front coverRelated: Read Kevin’s recent post 5 Ways Cloud Automation Drives Greater Cost and Operational Transparency and download eBook Driving Business Alignment Through IT Transformation for more information.

Operations Transformation at VMworld: What’s in it for you?

VMworldVerticalGIF_07.14.14 (1)

Your CIO expects great things, and you deliver by understanding and implementing great technology. But now it’s time to take it up a notch – show that you understand how technology change affects the entire organization. Bring forward ideas for people, process and technology evolution. This year at VMworld, the Operations Transformation track gives you the tools and examples you need to take a holistic view of change and drive it forward for success.

You’ll be able to explain how virtual computing can be extended to increase agility, transform storage to lower costs and raise performance, virtualize the network to improve speed and efficiency, and automate IT operations so your team can redeploy resources to focus on innovation. Learn from VMware experts as well as IT leaders who have made IT transformation happen inside large enterprises, and take their successes and lessons learned back to your role.

Combining technology with a new way of operating to become more service-oriented and bring more business value is every IT organization’s ultimate goal. Sessions are filling fast, so make sure you fill up your VMworld 2014 schedule with items from the SDDC > Operations Transformation track to bring essential big-picture thinking back to your department.

The Missing Link of IT: An Effective Service Costing Process

By Khalid Hakim

For years now, there has been much discussion about the urgent need for tighter alignment between business and IT. Why are we still talking about the “need for” alignment and not the “results of” better alignment? Because all too often, IT cannot answer one of the key questions business leaders ask: “What exactly does this service cost?”

In many cases IT does not have an adequate service costing process, which means it does not have a fast, accurate, consistent, fair way to provide cost information about IT services to constituents. And the lack of an effective service costing process is costing both IT and the business—big time.

Cost transparency is important not only because IT service users want to know what they’re paying for, but also because it provides an opportunity for IT to quantify its value to the business.

If IT can provide accurate cost information, both business and IT leaders can make better decisions about IT investments, outsourcing, cost cutting, business strategy, and competitive differentiation.

We’ve all heard the mantra “Minimize IT costs while maximizing business value,” or its short form: “Do more with less.” It’s a core principle of IT business management (ITBM). But without an accurate, transparent service costing process, how can IT leaders truly deliver IT as a service (ITaaS) and run IT like a business?

Take a closer look at your existing service costing process and ask yourself a few tough questions:

  • Is it accurate? Does it take into account all of the CapEx and OpEx elements of delivering an IT service?
  • Is it equitable? Does it charge the right constituents the right amounts for IT services, based on their actual consumption—or does it simply charge a lump sum based on voodoo economics?
  • Is it transparent? Can constituents get an accurate breakdown of what’s included in the final price tag and what isn’t?
  • Is it improving IT investment planning? Your service costing process should enable business and IT leaders to create more finely honed investment strategies that cut costs while creating new competitive advantages. Is it?

If you can look in the mirror and answer “yes” to all those questions, congratulations—you’re a member of a small minority of enterprise IT departments with an effective service costing process. If not, ask yourself the next logical question: How can you develop a better service costing process?

I’ll address that question in my next blog post. So stay tuned.
Khalid Hakim is an operations architect with the VMware Operations Transformation global practice. You can follow him on Twitter @KhalidHakim47.

VMworld-graphicAnd if you’re heading to VMworld, don’t miss Khalid’s session!

Accelerate Your IT Transformation — How to Build Service-based Cost Models with VMware IT Business Management (ITBM)
A recent VMware survey showed 75% of IT decision makers list the number one challenge in IT financial management as lack of understanding of the true cost of IT services. ITBM experts and VMware Operations Transformation Architects Khalid Hakim and Gary Roos shed light on this alarming figure, and give practical advice for obtaining in-depth knowledge of the cost of IT services so you can provide cost transparency back to the business.

When you visit the VMworld 2014 Schedule Builder, be sure to check out the SDDC > Operations Transformation track for these and other sessions to help you focus on all the aspects of IT transformation.

Don’t Miss Out: Ops Transformation is Big at VMworld

VMworldVerticalGIF_07.14.14 (1)Have you built your schedule for VMworld yet? Don’t forget to add sessions from the Operations Transformation track, with options that include:

Moody’s IT Transformation
Learn how credit rating giant Moody’s is transforming its IT department into a service brokerage, starting with implementing VMware vCloud Automation Center. SVP of Infrastructure Services Rajiv Doshi presents with VMware Operations Architect Rohan Kalra to share practical guidance and insights – including steps other enterprises can take to modernize and transform IT.

California Natural Resources Agency (CNRA) – Transforming to a Cloud-Based Shared Services IT Organization
Managing the largest water delivery system in the United States requires real-time data access and swift response time. CNRA has made great strides on the journey to become a shared services provider, with incredible results, including an overall IT CAPEX reduction of 42% and OPEX reduction of 35%. IT Director Tim Garza shares the organization’s journey and experience with the full VMware suite.

McAfee Meets Business Unit Demand with Elastic Cloud
Would you love to provide increased agility to your business unit partners while also reducing costs? McAfee has the story you need to hear. Hear Sr. IT Director Meerah Rajavel detail the U.S.-based security enterprise’s transformation, and how that transformation remains focused on business achievements with virtualization, automation and monitoring technology. Find out how to get the “quick wins” that provide necessary credibility and propel the process forward.

When you visit the VMworld 2014 Schedule Builder, be sure to check out the SDDC > Operations Transformation track for these and other sessions to help you focus on all the aspects of IT transformation.

The Forecast Is Sunny for Cloud Careers

This infographic distills data behind what’s driving the demand for IT professionals with cloud-related skills and why the hunt is on for top talent. Scroll through the entire image for a final section of lucrative careers and top companies hiring.




Service Catalog Is The New Face of IT

By Choong Keng Leong

Keng-Leong-Choong-cropMany organizations on their journey to delivering IT as a service have chosen to adopt and implement VMware vCloud® Automation Center™ to automate the delivery and management of IT infrastructure and services through a unified service catalog and self-service portal.  As this transformation requires a new IT operating model and change in mindset, a common challenge that IT organizations encounter is:

  • How do I define and package IT services to offer and publish on the service catalog?

This is analogous to a mobile operator putting together a new mobile voice and data plan that the market wants and pricing it attractively.

Here’s a possible approach to designing a service catalog for vCloud Automation Center implementation.

Service Model
Service catalog is the new face of IT. It is a communication platform and central source of information about the services offered by IT to the business. It is also empowering users through an intuitive self-service portal that allows them to choose, request, track, and manage their consumption and subscription to IT services.

The first step to developing the service catalog and identifying the services within it is to understand the business requirements as to how these demands are going to be fulfilled — that is to develop a service model. For example, you could start with a business function — Sales — and then pick a business process — client relationship management (CRM). CRM can be further broken down into three domains: operational CRM, collaborative CRM, and analytical CRM. Each of the CRM systems can be instantiated in different environments (product, test, and development). Each instance is technically implemented and delivered via a three-tier system architecture. What you would get is shown below in Figure 1, which is a service model for CRM.


Figure 1. Service Model for CRM

Repeat the above steps for the other business functions. At the end of the exercise, you have defined service categories, catalog items, and service blueprints for implementation of a service catalog and self-service portal in vCloud Automation Center.

Service Catalog
Using the above business centric approach allows you to define a customer-friendly service catalog of business services. The service categories and catalog items are in business-familiar terms, and only relevant information is presented to the business user so as not overwhelm him/her with the complexities of the underlying technologies and technicalities.

The business services are provisioned using service blueprints, which are templates containing the complete service specifications, technical service levels (e.g., RTO, RPO, and IOPS), and infrastructure (e.g., ESXi cluster, block or file storage, and network).  The service blueprints allow IT to automate provisioning through vCloud Automation Center. To maximize business benefits and optimization of infrastructure resources, it is also important to establish a technical service catalog of technical capabilities and to pool infrastructure resources with similar capabilities. Then, vCloud Automation Center can provision a service via the service blueprint to the most cost-effective resource pool and providing optimal performance.

In summary, using a business-centric approach to designing your service catalog elevates IT to speaking in business terms and provides a whole new IT experience to your users.

Choong Keng Leong is an operations architect with VMware Professional Services and is based in Singapore. You can connect with him on LinkedIn.

The Operations Transformation Track at VMworld: What’s It All About?

VMworldVerticalGIF_07.14.14 (1)As businesses move toward the software-defined data center model, it’s not just the technology that changes. IT organizations must evolve – sometimes radically – to ensure a more service-oriented and business value focused way of operating. Sure, that’s a logical argument, but how do you make sure those operational changes happen? How do you hire or retrain employees with the right skills to manage these new technologies? Which processes do you need to overhaul? Which processes are no longer necessary? Is your org chart even relevant anymore?

Come hear real-world experiences from companies like Boeing and McAfee, which have successfully shifted their operating models. Boeing’s Enes Yildirim explains how the company put itself on the path to multi-million dollar cost savings. McAfee’s Meerah Rajavel details how the security software firm turned the vision of IT transformation into business achievement.

Check out the SDDC > Operations Transformation track in the Schedule Builder for these and more sessions that will share best practices and key considerations to accelerate your journey to the software-defined data center.

7 Key Steps to Migrate Your Provisioning Processes to the Cloud

By David Crane

dcrane-cropIn an earlier blog, my colleague Andy Troup shared an experience where his customer wanted to embark on a process automation project, which could have had disastrous (and consequently frustrating and costly) results, as the process itself was inherently unsuitable for automation.

Automating processes is one of the first projects that organizations embark on once a cloud infrastructure is in place, but why? The answer lies in legacy IT organizations structures that have typically operated in silos.

Many of the IT organizations that I work with have a number of groups such as service development, sales engineering, infrastructure engineering, and IT security that face similar challenges that can include (among many others):

  • Applications provisioned across multiple environments such as development, QA, UAT, sales demonstrations, and production
  • Managing deployments of application workloads in a safe and consistent manner
  • Balancing the speed and agility of deploying the services required to deliver and improve business results while meeting compliance, security, and resource constraints

With the agility that cloud computing offers, organizations look to the benefits that automating the provisioning processes may bring to overcome the above challenges such as:

  • Reduced cycle time and operating costs
  • Improved security, compliance, and risk management
  • Reduced capital and operating expenditures
  • Reduced need for management/human intervention
  • Improved deployment/provisioning time
  • Consistent quality in delivery of services

The IT organizations I work with are often sold these benefits without consideration of the operational transformation required to achieve them. Consequently, when the IT team kicks off a project to automate business processes, especially service provisioning, their focus is on the potential benefits that may be achieved. The result of this focus is that automation becomes a panacea, and not something that should underpin the IT organization’s overall operational transformation project.

As IT leaders, when considering migrating your provisioning processes to your cloud environment, you need to realize that automation alone will not necessarily provide the cure to problems that exist within a process.

You should not consider the benefits of automation in isolation. For example, too much focus on cost reduction can frequently lead to compromise in other areas leading to objections and resistance from business stakeholders. You should consider other benefits that have non-tangible (or direct) metrics, such as improved staff satisfaction. Automation frees your technical staff from repetitive (and uninteresting) activities, which results in both improved staff retention and indirect cost benefit.

As you select processes to migrate from a physical (or virtual) environment to the cloud, the subsequent automation of those processes should not be an arbitrary decision. Frequently my clients choose processes as candidates for automation for reasons based on personal preferences, internal political pressures, or because some process owners shout louder than others!

Instead the desired business benefits the organization wishes to achieve should be considered in conjunction with the characteristics, attributes, and measurable metrics of a process characteristics and a formal assessment made of its suitability for automation.

Your automation project should also be implemented in conjunction with an organization structure assessment, which may require transformation and the introduction of new roles and responsibilities required to support the delivery of automated and self-optimizing processes.

Important Steps to Your Successful Process Assessment
Based on my experience assisting customers in this exercise, I recommend taking these steps before you embark on a process assessment:

  1. Understand automation and what it actually means and requires. Many organizations embark on automation without actually understanding what this means and the context of automated processes and their capabilities. Subsequent delivery then either leads to disappointment as automation does not meet expectations, or the process is not truly automated but instead has some automated features that do not deliver all the expected benefits.
  2. Identify and document the expected business benefits to be achieved through introduction of process automation. This is an important task. Without understanding the benefits automation is expected to achieve, you cannot identify which processes are the correct choices to help you do just that.
  3. Understand cloud infrastructure system management capabilities required to support process automation (e.g., ability to detect environmental changes, process throughput monitoring capability) and implement if required.
  4. Identify ALL processes required to support automated provisioning (e.g., instantiation, governance, approval) to create a process portfolio.
  5. Identify the common process automation characteristics that exist across the process portfolio (e.g., self configuration, self healing, self audit and metric analysis). Note that process characteristics are unique, high-level identifiers of automation across the portfolio.
  6. Identify the common attributes that the process characteristics share. These are more granular than process characteristics and thus may be common to more than one characteristic in the same process.
  7. Identify the metrics available for each process in the portfolio, and apply a maturity assessment based on their ability to be measured and utilized. Metric maturity is an essential part of the assessment process as it determines not just the suitability of the process for automation, but also its capability to perform self optimization.

Process Assessment Weighting and Scoring
When undertaking a process assessment program, an organization needs to understand what is important and prioritize accordingly. For example, if we consider the business benefits of automation, a managed service provider would probably prioritize business benefits differently to a motor trade retail customer.

Once you’ve prioritized your processes, they can be assessed more accurately and weighted based on each identified business benefit. Prioritization and weighting is essential, and you need to carefully consider the outcomes of this exercise in order for your process assessment to reflect accurately whether processes are suitable for automation or not.

And remember, as previously mentioned avoid considering each assessment criteria in isolation. Each process characteristic and associated attribute can have a direct impact on the desired business benefit, however if its metric maturity is insufficient to support it, then the business benefit will not be fully achieved.

For example, let’s say that you have identified that a business process you wish to automate has a self-healing characteristic. One of the attributes the characteristic possesses is the ability to perform dynamic adjustment based on real-time process metrics. The characteristic and attribute would lead you to expect the realize benefits such as reduced cycle time, reduced OpEx, consistent quality of service, and improved staff retention.

However, although you’ve identified the metrics required to meet the characteristic and attribute needs, they are neither measured or acted upon. Consequently, because the metric maturity level is low, then the expected business benefit realization capability is also lowered.

Figure 1 below shows a small sample of the assessment of a process in relation to a single process characteristic, common attributes, anticipated business benefits and their weighting and the impact that a poor metric maturity has on their capability to deliver the anticipated business benefit.

Figure 1. Assessment displaying impact of low metric maturity

Contrast this to Figure 2 below, which assesses a process with exactly the same characteristics, attributes, business benefits, but has supporting management capabilities and consequently much improved metric maturity:

Figure 2. Assessment displaying impact of high metric maturity

Based on this small data sample, the process in Figure 2 is a more likely candidate for process automation. The assessment process also then identifies, and allows the IT organization to focus on, areas of remediation needed to optimize processes to enable them to be suitable automation candidates.

The result is the IT organization is able to realize not just the business benefits that have been promised by automation more effectively, but they are also able to set realistic expectations with the business, which brings benefits all of its own.

In summary, automation is not the “silver bullet” for broken or inefficient processes. IT leaders need to consider expected business benefits in conjunction with process characteristics, attributes, and metrics and in the context of what is important to the business. By assessing the suitability of a process for automation, you can save the cost of a failed project and disappointed stakeholders. Finally, you should not undertake any provisioning process project in isolation to other operations transformation projects, such as organization structure and implementation of cloud service management capabilities.

I will discuss the steps to success mentioned above in more detail in my next blog.


David Crane is an operations architect with the VMware Operations Transformation global practice and is based in the U.K.


3 Steps to Get Started with Cloud Event, Incident, and Problem Management

By Rich Benoit

Benoit-cropWe are now well entrenched in the Age of Software. Regardless of the industry, there is someone right now trying to develop software that will turn that industry on its head. Previously, companies worked with one app that had the infrastructure along with it. It was all one technology, and one vendor’s solutions. Now there are tiers all over the place, and the final solution uses multiple components and technologies, as well as virtualization. This app is a shape shifter, one that changes based on the needs of the business. When application topology is changing like this over time, it creates a major challenge for event, incident, and problem management.

Addressing that challenge involves three major steps that will affect the people, processes, and technologies involved in managing your app.

1. Visualize with unified view
The standard approach to monitoring is often component- or silo-focused. This worked well when apps were vertical where an entire application was on one server; but with a new, more horizontal app that spans multiple devices and technologies – physical, virtual, web – you need a unified view that shows all tiers and technologies of an application. That view has to aggregate a wide range of data sources in a meaningful way, and then identify new metrics and metric sources. The rule of thumb should be that each app gets its own set of dashboards: “big screen” dashboards for the operations center that shows actionable information for event and incident management; detailed interactive dashboards that allow the application support team to drill down into their app; and management level dashboards that show a summary business view of application health and KPIs.

By leveraging these dashboards, event and incident management teams can pull up in real time to diagnose any issues that arise (see example below). Visualization is key in this approach, because it allows you to coordinate the data in a way that will actually allow for identification of events, incidents, and problems.

big screen dbVMware® vCenter™ Operations Manager™ “big screen” dashboard

2. Aggregate
When you’re coordinating a number of distributed apps, establishing timelines and impact becomes a much more complicated process. Here’s where your unified view can start to help identify problems before they occur. Track any changes that occur, and then map them back to any changes that have happened. When I’m working with clients, I demonstrate the VMware® vCenter™ Operations Manager™ ability to establish dynamic thresholds. The dynamic thresholds track back what constitutes common fluctuations, and leverages those analytics to establish baselines around what constitutes “normal.” By looking at the overall data in a big picture, the software can avoid false triggering around normal events.

3. Leveraging Problem Management
Ideally, you will be catching events and incidents before they result in downtime. However, that requires constantly looking for new metrics and metrics sources to create a wider view of the app. Problem management teams should be trained to identify opportunities for new metrics and new metrics sources. From there, the development team should take those new metrics and incorporate them into the unified view. When an issue occurs, and you look for the root cause, also stop to see if any specific metrics changed directly before the problem occurred. Tracking those metrics could alert you to a possible outage before it occurs the next time. Problem management then becomes a feedback loop where you identify the root cause, look at the surrounding metric, and then update the workflows to identify precursors to problems.

This doesn’t require you to drastically change how you are managing problems. Instead, it just involves adding an extra analytics step that will help with prevention. The metrics you’re tracking through the dashboard will generally fall into three basic buckets:

  • Leading indicators for critical infrastructure
  • Leading indicators for critical application, and
  • Metrics that reflect end-user experiences

Once you have established the value of finding and visualizing those metrics, the task of problem management becomes proactive, rather than reactive, and the added level of complexity becomes far more manageable.

Richard Benoit is an Operations Architect with the VMware Operations Transformation global practice and is based in Michigan.