Cost black holes

How the corporate data centre has become a cost black hole.

There is something of a tradition in economics of taking equations from physics and applying them to economic problems. In a similar vein I would like to draw an analogy between a black hole  and the modern corporate data centre.

Black holes;

• Black holes are well known for consuming anything that becomes trapped in their gravity well. The feedback process is that consuming matter increases their mass and therefore their ability to trap more matter. The analogy to data centres in this case is the consumption of the corporate budget, in capital, energy and management costs.
• Black holes are also known for having an event horizon, beyond which no light or information can escape, in this case the analogy with the data centre is cost or energy accounting, money is consumed to build ‘shared infrastructure’ and ‘virtualisation fabrics’ and yet, once this money crosses the data centre’s event horizon it is no longer possible to relate the capital and operational costs of the data centre to the ICT services it provides.
• The data centre can also be viewed as having an accretion disk, this is where infalling matter (or in our case cost) that is already trapped, collects before being consumed. For many organisations applications, desktops and laptops are now circling the drain in this accretion disk through the current trend to centralise ICT services in the data centre. This is moving the cost and power consumption of the user environment beyond the data centre cost event horizon.

This lack of transparency substantially damages the ability both of ICT to enhance the business and of the business to understand what relative or absolute value the ICT services provide.
There have been a number of changes impacting the data centre in recent years, which taken together have created this problem.

Driving technology factors;

• Desktop based applications are being replaced by larger and more complex client server and then browser based applications moving the load and cost to the data centre with desktop virtualisation at the logical end of this process.
• Moore’s law and commoditisation of servers have given us cheaper IT hardware in which performance has increased at a greater rate than power efficiency.
• Each year every £($) we spend on IT equipment needs more £($) in power to operate it. We have already passed the tipping point where a commodity server costs more in power than to purchase.
• Unfortunately the cost of data centre power and cooling infrastructure has not fallen with the silicon. In many cases underlying commodity prices such as copper have even risen. We have to install more and more £($) of this infrastructure to meet every £($) of spend on IT hardware.
• The rate of development in IT equipment combined with virtualisation allowing the easy migration of applications and therefore large scale replacement of hardware is reducing he service lifetime of IT hardware, increasing the effective cost.

Within many businesses there is a perception that the falling cost of commodity ICT equipment can be extrapolated to the overall cost of service delivery from the data centre. This leads to a range of behaviours which eliminate small costs elsewhere at the expense of much larger costs in the data centre, an example of this is procurement departments who still refuse to allow small additional costs for more power efficient servers whose pay back in data centre power cost alone is sub 12 months.

Driving business factors; 

• The rising dependence upon ICT services. In many sectors, ICT has ceased to be a tool to be deployed to gain an advantage and is now a basic minimum to even be in the game. This has driven demand for greater reliability and availability of ICT services, further increasing their cost.
• User demand for features and increasing software complexity has required more and more IT hardware to deliver services to the business.
• Apparently cheap IT hardware has driven optimisation of the software or system cost and effort, at the expense of data centre infrastructure and power costs.
• The perceived falling cost of these IT services has driven further increases in this demand through price elasticity.
• Rising cost of power in many areas which many forecast to continue and be exacerbated by price volatility and power availability issues.

These driving factors have combined to both increase the proportion of the total operating cost of the company that goes into ICT and the move the balance of cost for ICT equipment from procurement to operation as the cost of the data centre infrastructure and power has outstripped the hardware, frequently without the accompanying change in procurement policies to meet this inversion.

These cost pressures, coupled with business demands for scale, flexibility, rapid deployment and availability have driven a number of changes in the way data centres are operated.

Applied changes;

• Businesses are building more resilient (read complex and expensive to build and operate) data centres to support their critical (and all the other) services
• Expanding volumes of data are driving demand for expensive shared storage systems, often with little regard to the underlying value of the data or the business activity it supports. Many industries have taken a second hit here and are now required to spend money and power storing multiple copies of this data by government regulations.
• Power constraints, management costs and low utilisation of the faster servers are combining to push most IT departments into programmes of virtualisation. ICT departments have little choice but to virtualise as the cost implications of continuing to run underutilised individual systems are unacceptable.
• With virtualisation of servers driving further consolidation and centralisation of the network, storage and management systems in the data centre come substantial costs associated with deploying, managing and monitoring this new ‘Virtual Infrastructure’

Failure;

Whilst these decisions are individually sensible and cost justified, they have combined to create a serious problem. We can no longer explain to the business which part of the capital or operational cost should be assigned to which ICT service, business process or unit supported.
This is a fundamental failure in the relationship between ICT and the business and no claims of ”ICT led transformation” can be made whilst this financial opacity is the norm. The business is effectively prevented from managing operating costs or understanding the contribution to profitability (or losses) of the activities it performs. Costs, whilst optimised in aggregate now come in significant steps as adding capacity is no longer a small increment of buying a few servers but come in large units requiring the building entire new sections of IT and data centre infrastructure.
The increasing proportion of the overall business cost that goes into the data centre means that it is not longer effective or acceptable to view the data centre as a “central cost” and use a generic “allocation formula” to distribute the cost as used to be the case.
Further businesses are prevented from determining the environmental credentials of their activities as they can no better assign ICT carbon to each activity than they can cost. No amount of power metering is going to allow the measurement of the power consumed by a virtual machine using virtualised storage.

How do we fix this?

There are many steps to addressing this problem and they won’t happen overnight. ICT must develop the capability to provide “a fair and reasonable account of the financial and environmental cost of delivering a service”. This means that we have to break down the old boundaries between software, IT and facilities skills. We can no longer manage physical and logical infrastructures as if they are separate, we have to connect the skills, information and business requirements through the service delivery stack. This will allow us to manage the various layers more effectively, more reliably, more responsively and more in line with the real business requirements and not each layer’s perception of the requirements. Delivering on this change will allow ICT to move from a cost that business units are allocated to a valuable service that they are happy to assign budget to.