ToutVirtual Enterprise Virtualization - A Proper Virtual World

Charge Back Models? A Lack of Financial Brain Power?

November 28th, 2007

Know What Virtualization Is, But What Is Next? - Chapter 06

An interesting issue, at least for me, keeps coming back to the surface of issues that we, as virtualizationists have to deal with. Oh, virtualizationists? Well what the heck do we call ourselves? We save tons of money by implementing virtualization, we reduce infrastructure and in effect help make the computing industry more green, well, greener than ever, and I am not referring to the color of the ink on paper money of course. Unfortunately, accountants, the most evil profession on the planet in my humble opinion, just hate the very concept of virtualization. Why do I say this? It has been my experience that this is true. I have sat in various meetings where once I recommend pre-provision of infrastructure to allow virtualization to be responsive and adaptive to business needs, the financial gurus groan, grunt, hum and haw, and in at least one instance, a swear I heard someone crying at the other end of the long conference table, cough, call.

A project driven model, which accounts love, is a nice, specific, limited costing analysis, which is in effect a point-of-sale transaction, for example, the project is determined, management approves it, it is funded, and then implemented, and other than the depreciative costing over time, is a very simple capital expense model. However, pre-provisioning of virtualization infrastructure is not such a simplistic animal. Now, hardware is split by some crazy criteria, which may not even be obvious at first. What will the customer base really use? Virtual CPU capacity, Disk IO, Network IO, or even Memory Loading? What if your costing model is based on just one or two capacities, but all your clients end up using more of one of the others you did not base your cost model on? How in the heck do you remain responsive to customer needs over time?

Even worse, after you figure out some costing factor for Virtual CPU, Network, Disk, and Memory, did you really pre-provision enough or each? What about the time factor? Whatever you did pre-provision the accountants want charged back immediately, but when have you even had 20 virtual instances, or more online the same time you racked the virtual host server? Network connectivity must be preconfigured, who gets that fixed cost per month until it is fully loaded? Shared storage the same issue, but you have to have network and disk resources available before the virtual host is online, right? This is getting complex and difficult to manage from a project or logistical perspective, now they are yelling about cost allocation and charge-back? Some one or somebody save us, please.

Now enters the peanut-butter principle. Never heard of it? Me either, but one enlightened financial guru coined the term in a meeting some time ago, and it has stuck with me ever since. Now I am suggesting it to everyone else as a concept to follow. Here is how it goes:

• Decide what you need and when you need it in reference to infrastructure, pre-provision at least what you can for the first year if you can, this is a sunk cost.
• Decide how or what you will charge against, again by virtual CPU, disk, memory, and/or network resources, include all costs for the period defined, site costs, infrastructure costs.
• Define a charge model, that includes the typical virtual instance, the average scale per instance, divide this value by the total pre-provision cost for the first year, this is an estimate, and will change after the first year, but it does give you an argument to judge virtualization savings.
• This model is a leap of faith for two reasons, one, you expect to have virtualization for at least several years, and two, you client base understands that the initial costing quote is an estimate only.

There are some issues with this model, first year; it overcharges early adopters of virtualization, and under charges late adopters of virtualization, until a financial correct is done. However, if you bill by resource, and not by virtual instance, you can narrow the over and under costing variance per month. At the end of the year, the client will get credit or demand for funding depending on the baseline accuracy and variance incurred. The peanut-butter factor is the cost incurred per resource, per instance, per client, against the baseline costing. How does the financial team spread the variance and incremental costing that always comes up?  Good question!

Spread, peanut-butter? Get it? For example, 1 VCPU, 1GB RAM, 30GB DASD, with an average 100MB bandwidth need is $500 per month. But the client needed 2GB RAM after 3 months of service, but we had to pre-provision 32GB RAM in the virtual host. And, said client virtualized in January, and our other client virtualized in June. In December, what do we charge the January client, versus the June client? Oh, and did I mention that we had to increase total RAM in the virtual host to 48GB level in October to met demand needs? You really do need away to even out the costing to all clients effectively and accurately.  I have yet to find a great tool or method to do this, but I am sure someone out there has it on their respective roadmap.

Got a headache yet? Now that I think about it, the one accountant that I thought I heard crying? I did not understand their panic attack then, but now, I think I do. Whatever is done to address this issue, it is complex, beyond simple accounting spreadsheets, and will never work great from day one, it will have mature, just as virtualization is maturing. With each push of the knife across the slide of bread, the peanut-butter smoothes out, nice and even. Wait…Ok…Who is the wise ass…? I said smooth peanut butter, but why do I only have a jar of super chunky? Now I want to cry.

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