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Many are extolling the virtues of moving to the Cloud-enabled environment. From increased reliability to elastic applications and even predictable infrastructure costing, the benefits are indeed great. However, there has not been adequate conversation around how the Cloud allows the automation of Service Portfolio Management. Prior to the cloud, it was simply impossible to dynamically allocate infrastructure costs to the various services in the Portfolio. By using the allocation tools embedded in a public or private cloud, it is now possible to properly allocate these costs in a true consumption-based model. This allows us to automatically align the asset cost data with the labor cost to create the end-to-end cost structure of the service. Only through the automated calculation of this cost can fluid ROI calculations be generated, which facilitate the many benefits of Service Portfolio Management.

The Service Costing Challenge

The biggest challenge in enabling Service Chargeback in most environments is accounting the foundational elements that are shared dependencies across all Services. For example, there is a huge cost associated with establishing core-networking functionality in an organization -- from the network equipment and accessories, to the labor, to install, to configure, and to maintain this equipment, and even the upstream service cost from the Telco providers used for WAN connectivity. It is necessary to make this cost digestible by the business as an enablement service and apportion it to the various dependent business services the organization is able and willing to pay for.

There are many strategies to address this, but most leave much to be desired. In the best cases, the cost ends up being represented as a sunk cost equally distributed across all departments. The challenge in this methodology is the inequity of forcing all departments to bear the burden of costly services used by only a few. Imagine the situation in which one department requires a dedicated OC3 connection to support their activities where others could easily operate with a fraction of a single T1 line. While all departments will benefit from the increased capacity, the benefit to one department will clearly be higher. Does it make sense to charge all departments equally? How do they account for capital expenditures, or support costs and labor where one department uses a disproportionate percentage of a given service?

While unfair, the equal distribution method is still vastly superior to the more often leveraged methodology in which the costs are owned entirely by IT, which then becomes a black boxed cost center rather than a partner in the business. In these instances, the demands for faster, better, more expensive service tend to grow unchecked because the costs are not transparent to those consuming the service. The business simply demands more, faster, better, while simultaneously demanding that IT find a way to reduce budgets. This is clearly not a model for success.


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