The unexpected costs of moving to the cloud
A few years ago, companies thought the cloud might help save on costs. No doubt everyone recalls the plethora of articles with titles such as: "How to save time and money in the cloud" or "Cloud Computing can generate massive savings" . Analyst studies from leading think tanks from the likes of Booze Allen Hamilton and The Brookings Institute also supported the notion that moving to the cloud will result in massive cost reductions in IT spending.
The reality hasn't quite lived up to the expectation. In a 2014 IDG Enterprise Study , 63% of organisations indicated IT agility was a major driver of cloud adoption; 61% said IT innovation and another 58% said “access to critical business data and applications”. While only 23% said the cloud was reducing IT costs and 20% said the cloud was reducing IT headcount.
Now headlines are more likely to read like this one from the Wall Street Journal “The Hidden Waste and Expense of Cloud Computing” . So what is really happening?
The Implications of the Shift from CAPEX to OPEX driven IT
Customers are finding a set of “unexpected costs” popping up - mostly in the form of an unexpected or unusually large bill from a cloud provider. We hear stories of cloud instances left running, but unused, as cloud sprawl becomes a bigger challenge. The controls aren't in place to help track and manage resources, and the mind-set isn't there in terms of thinking about the best way to control and manage the cost of the cloud.
In the traditional Capital Expenditure (CAPEX) centric model (which is how traditional data centres are built), IT is driven by large up-front purchases of hardware and software that follow the 3-4 year vendor refresh cycle. However, in a cloud centric view of the world driven by Operational Expenditure (OPEX), everything shifts to monthly or annual subscriptions. Ultimately this should be a good thing. Replace a highly variable CAPEX model, driven by infrequent large purchases, with a very smooth (in theory) predictable OPEX model with standard, recurring costs every month.
The long-standing traditional CAPEX centric model based on large upfront costs did have the benefit of well-established control processes when it came to managing resources. However, those days are fading rapidly. We have entered a transition period where IT is technically using the new utility delivery model, but most are still thinking about the cost and management processes for IT in the form of CAPEX.
Time to a change
Getting our heads around this problem is as much about mindset and management processes as it is about tools and technology. In IT, we have been thinking in terms of high value refresh cycles and CAPEX management for many years. Thinking like a utility company is going to take some time - but the organisations that can change their thinking quickly and efficiently are going to have a major advantage.
As we evolve our thinking, we're going to need some new tools to help us track and optimise all this. Imagine a single, web-based tool that will let you:
- Provision large numbers of cloud instances
- Attach expiration dates to those Virtual Machines (VMs)
- Automatically power VMs down after expiration
- Manage across many cloud platforms in a single interface.
This type of functionality makes sure that a team (for example a development team working on a new application) does not go home for the weekend and “leave the water running” on their project sitting in AWS. The idea is to set up some automation that does the “custodial work” or clean-up work for you.
To avoid unexpected costs with cloud, we need a new system of accounting and management that tracks actual Central Processing Unit (CPU) cycles, network bandwidth and storage CONSUMED, not just units purchased and sitting idle. The days of counting up physical boxes was left behind quite a few years ago when we started virtualising large swaths of the data centre. However, let's face it - now we're just counting sockets and VMs instead. If we start tracking actual legitimate usage and consumption on an ongoing basis, then we might find that cloud doesn’t cost us the earth.
IMF: Variants Can Still Hurt Manufacturing Recovery
After a year of on-and-off manufacturing in the US, UK, and the eurozone, demand for goods surged early last week. Factories set growth records in April and May, suppliers started to recover, and US crude hit its highest price point since pre-COVID. As vaccination efforts immunise much of the US and UK populations, manufacturers are now able to fully ramp up their supply chains. In fact, GDP growth could approach double-digits by 2022.
Now, the ISM productivity measure has surpassed the 50-point mark that separates industry expansion from contraction. Since U.S. president Biden passed his US$1.9tn stimulus package and the UK purchasing managers index (PMI) increased to 65.6, both sides of the Atlantic are facing a much-welcomed manufacturing recovery.
Lingering Concerns Over COVID
Even as Spain, France, Italy, and Germany race to catch up, and mining companies pushed the FTSE 100 index of list shares to a monthly high of 7,129, some say that UK and US markets still suffer from a lack of confidence in raw material supplies. Yes, the Dow Jones has made up its 19,173-point crash of March 2020, and MSCI’s global stock index is at an all-time high.
Yet manufacturers around the world realise that these wins will be short-lived until pandemic supply chain bottlenecks are solved. If we keep the status quo, consumers will pay the price. In April, inflation in Germany reached 2.4%, and across the EU’s 19 member countries, overall prices have increased at an unusual pace. Some ask: Is this true recovery?
IMF: Current Boom Could Falter
Even as Elon Musk tweeted about chip shortages forcing Tesla to raise its prices, UK mining demand skyrocketed; housing markets lifted; and the pound sterling gained value. The International Monetary Fund (IMF), however, cautioned that manufacturing recovery won’t last long if COVID mutates into forms our vaccinations can’t touch. Kristalina Georgieva, Washington’s IMF director, noted that fewer than 1% of African citizens have been vaccinated: “Worldwide access to vaccines offers the best hope for stopping the coronavirus pandemic, saving lives, and securing a broad-based economic recovery”.
Across the globe, manufacturing companies are keeping a watchful eye on new developments in the spread of COVID. Though US FDA officials don’t think we’ll have to “start at square one” with new vaccines, the March 2021 World Economic Outlook states that “high uncertainty” surrounds the projected 6% global growth. Continued manufacturing success will in large part depend on “the path of the pandemic, the effectiveness of policy support, and the evolution of financial conditions”.
Mathias Cormann, secretary-general of the Organisation for Economic Co-Operation and Development (OECD) concurred—without global immunisation, the estimated economic boom expected by 2025 could go kaput. “We need to...pursue an all-out effort to reach the entire world population”, Australia’s finance minister added. US$50bn to end COVID across the world, they imply, is a small investment to restart our economies.