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Refresher Course in Automation Economics

It’s a key question in developing a private or hybrid cloud strategy: “What processes should we automate?”

There are plenty of candidates: provisioning; resource scaling; workload movement. And what about automating responses to event storms? Incidents? Performance issues? Disaster recovery?

To answer the question, though, you need to first establish what you’re looking to gain through automation. There are two basic strategic approaches to automation, each with specific value propositions:

  • task automation – where the proposition is more, better, faster
  • service automation – where you’re looking to standardize and scale

In my last post, I looked at how the automation strategy determines your HR needs.

In this post, I’ll highlight a simple economic model that can be used to cost justify task automation decisions. Next time, I’ll refine the math to help analyze decisions about what to automate when pursuing a service automation strategy.

The Cost Justification for Task Automation – the Tipping Point

From a cost perspective, it makes sense to automate IT tasks if:

  • the execution of the automated task has a lower cost than the execution of a manual version of the task.
  • the automated process can be run a large number of times to spread the cost of development, testing, and ongoing maintenance of the automation capability.

Brown and Hellersten at the IBM Thomas Watson Research Center expressed the idea in a simple model.[1] It compares the fixed and variable costs of manual process versus automated version of the same process. The cost calculation is based on the variable N, which represents the number of times the automated process will execute.

IT organizations typically automate existing manual processes. So we consider the fixed cost of developing the manual process as part of the automated process costs.

With these two equations, we can solve for an automation tipping point Nt. Nt, then, is the number of times a process is executed at which it becomes cost effective to automate the process.

Changing the task automation tipping point

Now, what actions could we take that would shift the tipping point? We might:

1. Reduce automation fixed costs. If we can drive down automation fixed costs, automation becomes economically attractive at lower number of process executions.

Automation fixed costs include purchasing and maintaining the automation platform, as well as standardizing process inputs, ensuring the process is repeatable, developing policies, coding automation workflow based on those policies, testing each automation workflow, documenting error and establishing exception handling procedures. We also need to add in ongoing maintenance and management of automation routines that may change as IT processes evolve. If any of this work can become highly standardized, Nt will be lower, which will in turn increase the scope of what can be further automated.

2. Minimize automation variable costs. Reducing automation variable costs also makes automation attractive at lower number of executions.

Variable costs include both the cost of each automation execution and the cost of managing exceptions that typically are triaged via manual resolution processes. With a very large number of process executions, the variable cost of each incremental automated process execution would essentially be zero except for costs related to handling exceptions such as errors and process failures. Standardizing infrastructure and components configurations, and thus management processes, reduces exceptions and lowers the tipping point.

3. Pick the right tasks.  Automating manual processes with high cost of execution is an obvious win. The slower and harder the manual task, the higher the cost of each execution, and the lower the tipping point for automating the process.

Benefits other than cost reduction

Automation offers benefits beyond cost reduction, of course. In the cloud era, demand for agility and service quality are also driving changes in the delivery and consumption of IT services.

Automation for agility 

Agility is key when it comes to quickly provisioning a development or a test environment, rolling it into production, avoiding the need for spec hardware, accelerating time to market and reducing non-development work. Typically, 10-15% of total development team effort is spent just configuring the development environment and its attendant resources. Automation can make big inroads here. Note, too, that agility and speed-to-market factors, which generally have a revenue-related value driver, typically aren’t included in task automation tipping point calculations.

Automation for service quality

Automation promises greater consistency of execution and reduced human error, quality-related benefits that also aren’t factored in the calculations above. Downtime has a cost, after all. Deploying people with different skills and variable (and often ad hoc) work procedures at different datacenter facilities, for example, directly impacts service quality. Automated work procedures reduce both human error and downtime.

Back to the math

Really, we should add the quality-related costs of error and inconsistency to our manual variable processes costs, since they mirror how automation error recovery costs are calculated.

To account for the manual process quality costs, the tipping point calculation could replace “Manual variable costs” with “(Manual variable costs + Manual quality costs)” in the denominator.

Doing that would further lower tipping point number that justifies automation.

Here’s how I sum up these concepts applied to task automation environment:

  • If a manual task is easy, it is difficult to justify automating it because the tipping point number will be very high or never reached
  • If a manual process is hard and error prone, it is easy to justify automation i.e. Nt is a low number
  • If there are a lot of process exceptions that result in a large percentage of process executions that result in a manual intervention – it makes it harder to justify automation
  • If automation routines are hard to program, or take a lot of time and effort to tweak and maintain over time due to ad hoc run book procedures – it makes it harder to justify automation

In the next post, I’ll explore the economic justifications for automation under a service automation strategy.

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[1] Reducing the cost of IT Operations – Is automation always the answer? IBM Thomas J. Watson Research Center.  Proceedings of the 10th conference on Hot Topics in Operating Systems, June 12-15, 2005, Santa Fe, NM

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About Kurt Milne

Kurt Milne is the Director of Product Marketing at VMware with more than 20 years of experience in various executive management, engineering, and analyst positions at leading tech companies, including Hewlett-Packard, BMC Software and several startups. In 2011, he released a book called “Visible Ops Private Cloud: from virtualization to private cloud in 4 practical steps”. Formerly the Managing Director of the IT Process Institute, he was the primary investigator and author of 6 major research studies on private cloud, virtualization, IT controls, change configuration and release, strategic alignment and IT governance.