Scalpel or Cleaver: CIOs Can Show CFOs the Light

By Dennis Barker

November 23, 2008

Unless you secure passage to an alternate, idyllic IT universe, you’ll be hearing frequently about cutting costs in the coming quarters. As Gartner analyst Jorge Lopez told the crowd in October at the Gartner Symposium/ITxpo, organizations next year will be faced with cuts in the 20 percent to 30 percent range, if not worse. Even the optimistic predictions are not exactly chirpy; IDC, for example, recently revised its 2009 U.S. IT spending forecast downward to +0.9 percent.

So while the cleavers sharpen, the IT group needs to figure out where and what to cut — an exercise that doesn’t get easier with practice. What would be useful is a tool that can find answers: Out there in that vast and dense infrastructure, what are the costs we’re not seeing?

Expense reporting and analysis solutions are quite common, but one year-old company, Apptio, brings a few twists that should be appealing in these financially interesting times. First, Apptio offers its tools on a SaaS platform — “on-demand IT cost transparency solutions,” they call it. Apptio’s services also allow easy and automated data collection, a visual modeling environment, and some functions that could help IT managers respond to brass talking about “aligning IT with business objectives” (i.e., “How much is IT costing us this year, Bub?”).

“Cost transparency” might sound too much like consultant-speak, like something you’d get with one of those “framework” systems of the ‘90s that promised to solve every problem except how to use it. But it really means being able to see the cost of every little thing, and even costs hiding behind other costs.

Apptio’s idea is to make this X-ray vision easier to attain, and more useful, as well. “We were able to rapidly establish greater visibility into the costs of our core infrastructure services,” says Joel Chaplin, senior vice president of IT operations and enterprise systems at Motricity, a provider of managed services to mobile carriers like Verizon and AT&T. Apptio yielded cost and utilization data that helped prioritize targets for a server consolidation initiative across its nine datacenters, Motricity says.

Another customer, Skytap, provides a cloud-based virtual lab that enables organizations to scale their lab environments on demand. “Skytap Virtual Lab is designed for high-cost dynamic environments, such as application development and QA, IT ops testing, training and demo environments,” says Scott Roza, Skytap CEO. “In order to be successful, it is essential for Skytap to deliver great value to customers. One area we focus on is ensuring costs are kept low by optimizing management of our datacenters. Skytap uses Apptio to monitor usage of cloud resources and identify ways to reduce the costs of provisioning virtual infrastructure.”

Copyright: ApptioApptio’s platform lets users start by compiling data on IT costs — from servers to cooling and everything in between, at whatever level of detail is needed, from licensing fees to electricity bills. This sort of thing often is done with spreadsheets, but, as some experts will tell you, that approach on a large scale can become too rigid, and can depend too much on the one staffer who understands the formulas. With Apptio, users can input data manually or pull it from multiple sources, including accounting files, reporting systems, asset databases, tech support databases, spreadsheets and so on. Utilization and operational metrics also can be captured and worked into the mix.

After entering the system, data goes into templates intended to make it easier to get an accurate cost model. (There is a “transparency template” for application services, for example, and one for datacenter infrastructure services.) Apptio has built business intelligence and best practices into these templates. As data pours in, algorithms indentify patterns and relationships between costs and cost drivers. This is not so much a way to build a cost-collecting repository, but rather a system of analytics, rules and business logic designed to help make smart, dollar-collecting decisions. Once this logic is nailed down, it can be applied to future data uploads. This is one of Apptio’s “automated cost transparency” features, with another being hooks to automatically pull in data from different sources.

“We’re helping service providers and enterprises understand how their IT infrastructures operate so they can focus on cost optimization,” says Eric Berg, Apptio vice president of product management and marketing. “We help them answer several fundamental questions: What does it really cost to offer a service? How profitable are we? Where can we cut costs?”

Customers can use Apptio services to help them manage their service-level agreements, Berg says. “Our core technology has a robust analytics engine that can do correlation, relationships, identify metrics and do the analysis necessary to find out if performance is meeting SLAs,” he says. “And once they gain that visibility into total costs at the IT service level, they can understand all the drivers. Not just financial numbers, but also CPU and storage utilization rates, server-to-admin ratios, rack space, you name it.”

Once all that information is brought into Apptio, people can work with it using one of the company’s biggest selling points: its visual modeling environment. The modeling editor, for example, makes it relatively painless to display different sources of spending (servers, storage, software, support, business units, etc.) as boxes, like in a decision-support system, and then define the relationships between them. Inside those boxes can be a wealth of very useful information. Berg demonstrated how users can easily dig into each specific item to pinpoint minute cost factors.

“If the information has been loaded, users can instantly get a detailed, dashboard view of the true costs of every product they own, right down to a particular server or a support ticket associated with that server,” he says. “Using these visual tools it’s easy to get a model in place, then generate reports and see what’s driving costs, whether it’s infrastructure, bandwidth, support. A CFO at a hosting provider could sit at our dashboard and sort his customers by profitability and margin, or analyze costs by geography. You can see the cost of every service, then drill down for the specifics. We provide very good visibility into data and the relationships between data.”

What Happens If We Do This?

Apptio isn’t only about identifying costs in order to cut them. Users also can use the platform to play out “what-if” scenarios. “If we replace 50 old-time servers with 25 blades, what will be the affect on the utility bills?” “If we shut down Datacenter No. 6 at night, what are the implications for SLAs?” “If we buy a bunch of hardware to serve a new type of customer, how many customers do we have to get?” “What happens if we shift demand to someone’s cloud?”

“By simulating changes in key metrics, by looking at changes in IT expenses and utilization, power costs and labor, organizations can see the impact of new investments,” Berg says. “’How many servers will we need if we grow?’ ‘What if user demand varies?’ Working out scenarios with real data can really help companies do more effective predictive analytics.”

Skytap expects to use that functionality as it charts forward. “We plan to use Apptio for sophisticated modeling of new environments to ensure they are built cost-effectively,” Roza says.

Skytap brings to mind another regular Apptio usage situation: virtualization scenarios. “We typically get pulled into a virtual environment to help people discover the costs beyond the simple estimate you might get from VMware,” Berg says. “There are broader costs associated with virtualization, like new management tools, patching OSes, training, soft costs. They can put all these items in our system to understand and baseline the cost of their virtual environment.”

He says Apptio also is brought in as “more of a chargeback operation.” “As virtualization comes into the equation, it makes it more difficult to understand how costs are rolled back to individual departments,” Berg explains. “They need sophisticated analytics to pull in data and figure out how to allocate costs back.” Skytap applied Apptio to the question of how much they should charge for their virtual machines.

With a world of budget hurt ahead, there couldn’t be a better time for tools that help pinpoint costs and reveal relationships between expenses incurred and services provided. Answers to questions like “What does it cost us to deliver that service?” “Are we making any money with product X?” and “What can we do to make that datacenter profitable” would be appreciated.

Whether Apptio’s cost transparency service is right for every hosting provider or big IT organization is “tough to say,” says Dan Golding, vice president and research director at Tier1 Research, in his assessment of the offering. “But for the majority of providers, additional tools to figure out how much services actually cost to provide … cannot be anything but highly useful.

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