Quantifying Reputation Loss From a Breach

- Lori MacVittie, senior technical marketing manager at F5 Networks (www.f5.com), says:

It’s really easy to quantify some of the costs associated with a security breach. Number of customers impacted times the cost of a first class stamp plus the cost of a sheet of paper plus the cost of ink divided by … you get the picture. Some of the costs are easier than others to calculate. Some of them are not, and others appear downright impossible.

One of the “costs” often cited but rarely quantified is the cost to an organization’s reputation. How does one calculate that?

Well, if folks sat down with the business people more often (the ones that live on the other side of the Meyer-Briggs Mountain) we’d find it’s not really as difficult to calculate as one might think. While IT folks analyze flows and packet traces, business folks analyze market trends and impacts – such as those arising from poor customer service.

And if a breach of security isn’t interpreted by the general populace as “poor customer service” then I’m  not sure what is. While traditionally customer service is how one treats the customer, increasingly that’s expanding to include how one treats the customer’s data. And that means security.

This question “how much does it really cost” is one Jeremiah Grossman asks fairly directly in a recent blog, “Indirect Hard Losses”:

As stated by InformationWeek regarding a Ponemon Institute study on the Cost of a Data Breach, “Customers, it seems, lose faith in organizations that can't keep data safe and take their business elsewhere.” The next logical question is how much?

Jeremiah goes on to focus on revenue lost from web transactions after a breach and that’s certainly part of the calculation, but what about those losses that might have been but now will never be? How can we measure not only the loss of revenue (meaning a decrease in first-order customers) but the potential loss of revenue? That’s harder, but just as important as it more accurately represents the “reputation loss” often mentioned in passing but never assigned a concrete value (at least not publicly, some industries discretely share such data with trusted members of the same industry, but seeing these numbers in the wild? Good luck!)

HERE COMES the ALMOST SCIENCE

20% of the businesses that lost data lost customers as a direct result. The impacts were most severe for companies with more than 100 employees. Almost half of them lost sales.

Rubicon Survey 

One of the first things we have to calculate is influence, as that directly impacts reputation. It is the ability of even a single customer to influence a given number of others (negatively or positively) that makes up reputation. It’s word of mouth, what people say about you, after all.

If we turn to studies that focus more on marketing and sales and businessy things, we can find a lot of this data. It’s a well-studied area.

One study¹ indicates that the reach of a single dissatisfied customer will tell approximately 8-16 people. Each of those people has a circle of influence of about 250, with 25 of those being within an organization's primary target audience. Of all those told 2% (1 in 50) will defect or avoid an organization upon hearing of the victim's dissatisfaction.

So for every angry customer, the reputation impact is a loss of anywhere from 40-80 customers, existing and future. So much for thinking 100 records stolen in a breach is small potatoes, eh? Thousands of existing and potential customers loss is nothing to sneeze at.

Now, here’s where it gets a little harder, because you’re going to have to talk to the businessy folks to get some values to attach to those losses. See, there’s two numbers you need yet: customer lifetime value (CLV) and the cost to replace a customer (which is higher than the cost of acquire a customer, but don’t ask me why, I’m not a businessy folk).

Customer values are highly dependent upon industry. For example, based on 2010 FDIC data, the industry average annual customer value for a banking customer is $209². Facebook’s annual revenue per user (ARPU) is estimated at $2.00³. Estimates claim Google makes $9.85 annually off each Android user⁴. And Zynga’s ARPU is estimated at $3.96 (based on a reported $0.33 monthly per user revenue)⁵. This is why you actually have to talk to the businessy guys, they know what these values are and you’ll need them to plug in to the influence calculation to come up with a at-least-it’s-closer-than-guessing value. You also need to ask what the average customer lifetime is, so you can calculate the loss from dissatisfied and defecting customers.

Then you just need to start plugging in the numbers. Remember, too, that it’s a model; an estimate. It’s not a perfect valuation system, but it should give you some kind of idea of what the reputational impact from a breach would be, which is more than most folks have today.

Even if you can’t obtain the cost to replace value, try the model without it. Try a small breach, just for fun, say of 100 records. Let’s use $4.00 as an annual customer value and a lifetime of ten years as an example.

Affected Customer Loss: 100 * ($4 *10) = $4000

Influenced Customer Loss: 100 * (40) = 4000 * 40 = $160,000

Total Reputation Cost: $164,000

Adding in the cost to replace can only make this larger and serves very little purpose except to show that even what many consider a relatively small breach (in terms of records lost) can be costly.

WHY is THIS VALUABLE?

The reason this is valuable is two-fold. First, it serves as the basis for a very logical and highly motivating business case for security solutions designed to prevent breaches. The problem with much of security is it’s intangible and incalculable. It is harder to put monetary value to risk than it is to put monetary value on solutions. Thus, the ability to perform a cost-benefit analysis that is based in part on “reputation loss” is difficult for security professionals and IT in general. The business needs to be able to justify investments, and to do that they need hard-numbers that they can balance against.

It is the security professionals who so often are called upon to explain the “risk” of a breach and loss of data to the business. By providing them tangible data  based on accepted business metrics and behavior offers them a more concrete view of the costs – in money – of a breach. That gives IT the leverage, the justification, for investing in solutions such as web application firewalls and vulnerability scanning services that are designed to detect and ultimately prevent such breaches from occurring.

It gives infosec some firm ground upon which stand and talk in terms the business understands: dollar signs. 

Data Center Equipment: Getting Rid of Decommissioned Gear

 – Terry Fockler, Silicon Valley Engineering/Solutions (terryfockler@sbcglobal.net), says: 

One of the most over-looked issues for any data center manager going through a refresh or upgrade (and the last thing they tend to consider), is what to do with the decommissioned equipment. Equipment typically sits in a closet until someone gets tired of tripping over it.

But recovering that gear and moving it quickly can be a reality (with the right vendor). The longer it sits, the more it loses value, so repurposing and tracking is very important along with data mitigation. The last thing a data center manager wants or needs is to expose data to the public and improperly disposing of gear -  this can come back to haunt anyone. The chain of custody is very critical to the security of data and the safety of the corporate environment. The EPA is constantly evolving the rules on disposition and tracking of decommissioned/used data center equipment, and they are seriously increasing the penalties.

If you have an upcoming upgrade or refresh, recovery should be an up-front issue: How do we dispose of the decommissioned gear; How can we maximize the return? How will this impact our taxes and depreciation schedules, and how do we avoid EPA and federal negative issues and requirements? In the secondary market, timing is critical to maximize your return, the secondary market is extremely fluid and volatile.

The date mitigation and chain of custody are two areas that can cause major headaches, not only in the immediate future, but also have long lasting potential dangers. That equipment may change hands and ownership several times.

Choose your vendor carefully and you will rest in knowing your data is erased and you have maximized your return, and that your company name will not also end up in a land fill somewhere.

Next Generation Data Center Planner Reduces Planning and Management Costs, Improves Energy Efficiency

- Traci Yarbrough, director of product marketing with Emerson Network Power data center solutions (www.emersonnetworkpower.com), says:

Emerson Network Power has introduced the next generation of Avocent Data Center Planner, an award-winning software solution that enables data center managers to make informed decisions for the planning and effective management of their data center assets and physical infrastructure.

This is the fourth release of Avocent Data Center Planner. This product is a component of Emerson Network Power’s extensive portfolio of data center infrastructure management (DCIM) capabilities.

The ad-hoc data center management tools that were effective in the past are increasingly difficult to maintain in today’s complex environment. Avocent Data Center Planner is an effective alternative to legacy management tools because it provides all of the detailed information that is required to efficiently plan and manage the physical infrastructure in one dynamic graphical interface. Customers realize an immediate return on investment because they no longer need to consult multiple point products to make decisions and plan changes. It also builds on our promise of delivering a simple and easy to use DCIM capability.

The product provides data center managers, who are under constant pressure to control and reduce costs, with accurate and complete information about where their devices and equipment are located, their current capacities and projected growth. This visibility enables data center managers to effectively implement and manage their consolidation, virtualization and energy efficiency initiatives.

The latest version of Avocent Data Center Planner enhances the product’s ease of use and simplicity while delivering superior power management, visualization and manageability capabilities. The new version provides:

• The ability to gauge “real-world” power usage to more precisely, manage capacity, extend the life of the data center infrastructure and anticipate issues that need to be resolved before an incident occurs. Configured to communicate with other industry products, the next generation management software will provide out-of-the-box support for Avocent PDUs, Liebert PDUs, Avocent DSView 4 and Liebert SiteScan Web
• End-to-end connection visualization will allow data center managers to capture and view the most realistic, current-state view of the data center. Additionally, when considering a move, consolidation or replacement, the connection data allows dynamic planning and faster approval of proposed changes
• Zone management provides the flexibility and control administers require to operate co-location/cloud environments
• Spanish language support which augments the support for Japanese, Chinese, German, Russian and French in v3.2

Avocent Data Center Planner is available worldwide now.

Energy Efficiency In The Datacenter: The Incentive Must Be Clear

- Zahl Limbuwala, CEO of Romonet (www.romonet.com), says:

We all agree that cutting energy costs and cutting carbon are both vital in the datacenter – but the way that datacenter user costs are measured and portioned out needs to radically change if we want to fully realize the benefits of the latest energy efficient technologies.

For me, the usual way that costs are divided out is badly flawed – and this is something that occurs in businesses across the world. It fails the user who might want to reap the returns of buying the latest energy efficient IT and it fails the industry as a whole because it discourages people from using IT in a more innovative, responsible and energy efficient manner. In turn, this means that datacenters (and the IT equipment within them) are often far more wasteful and carbon intensive than they should otherwise be – and that’s no good for any of us.

So what’s going wrong? Imagine you’re a manager running an enterprise datacenter for a large bank. Within your datacenter, you are servicing multiple internal clients – from the bank trading floor to customer services. Each client ‘buys’ services from you and you have to decide how much to charge them in return – and this is where the problems start.

In the past, this ‘charge-back’ as it’s called has been relatively straight forward. Finance will typically use physical space as a proxy for how much datacenter capacity a client uses. If they have them at a granular enough level, they may then look at their electricity meters to see how much metered energy they’ve used and then they will multiply this figure by a single averaged multiplier (normally Power Usage Effectiveness) to account for the shared overheads – which can be very large. It’s a model similar to the one used to figure out costs in a serviced office. In a shared office space, a tenant pays for how many square feet they use. Then they pay a variable fee for the utilities consumed and a portion of the fixed costs of the common areas you share with other tenants – the phone lines, kitchen area, cleaning services, etc.

Up until fairly recently, that’s worked fine because everyone has been buying roughly the same kind of IT equipment and using it in the same kinds of way. But over the past few years, things have significantly changed in the datacenter because the technology’s advanced.

Modern virtualization technology can vastly increase the utilization and therefore energy efficiency of datacenter servers and today, a single piece of IT kit can perform the job of multiple machines. This means that physical space is no longer an adequate indication of how much of the shared fixed costs are being consumed by any one particular client within a datacenter – costs can be vastly different depending on the technology you use and how you are using it. This also means that how many – or few – boxes a particular datacenter client buys is no real indication of how energy efficient – or otherwise – their behavior is.
Unfortunately, whilst the technology has certainly advanced, the method a datacenter manager uses to measure and then divide up datacenter costs has remained unchanged.

To explain this point further, let’s return to our fictitious bank datacenter. Let’s say there are two internal business units within the bank using the same datacenter. One of these clients is happy to invest more in modern compute servers and software virtualization technology – and therefore will be more energy efficient – and they’re happy to pay a premium in the upfront capital costs. Let’s also say that there’s another department that doesn’t care so much about their energy efficiency or the overall energy bill. They’re just interested in buying the cheapest technology they can and if they need to buy more capacity – they’ll just buy more boxes later down the line. Now, these two departments might take up roughly the same physical space – so they’d be charged similar amounts on that level. Their electricity costs would be divided out depending on how much each uses – so far, so fair. But what about the share of those fixed costs? Here’s where the unfairness arises.

Whilst the department using the more energy efficient kit will have a lower overall utilization of that overhead (because they are achieving more with much less) they won’t be given the benefit of that lower impact because fixed costs are shared out equally. The more energy efficient department won’t be rewarded for their low carbon behavior and conversely, the energy hungry department won’t be penalized for underutilizing their IT and wasting expensive shared resources.

If a department can’t see a cost benefit in choosing energy efficient kit, they’re unlikely to continue in the long term. If a department doesn’t think it will be penalized for carbon hungry activity, then they’re unlikely to change either. If we want to influence buyers to make more cost and energy efficient buying decisions we must get the chargeback methodology right to incentivize the right behavior.

So, what’s the answer? In order to present any sort of meaningful or fair charging mechanism and to get the market moving towards producing more energy efficient equipment, we need to be able to differentiate between a client’s fixed costs (building the capacity) and their variable costs (using the capacity). Those clients with better and more highly utilized efficient equipment must pay less of the bill for the overheads because proportionally, there are actually using less. We must fix the system to ensure that whether you are running an enterprise datacenter or a co-location center, costs are allocated proportionally and fairly. Only then will we see businesses understand the real cost benefits of using the latest energy efficient technologies – and only then will we see longer term behavior start to change.

The Next Energy-Saving No-Brainer: Filtration

- Rob Goodfellow, vice president of marketing at Dynamic Air Quality Solutions (www.dynamicaqs.com), says:

Managers interested in conserving energy and operating costs have probably already replaced old incandescent light bulbs with new energy-saving bulbs. So what’s next? It’s not as obvious as lighting, but it can be just as helpful to the bottom line: filtration. Especially in data center environments where tiny unseen particles can cause damage to expensive hardware.

For an industry that often requires millions of dollars to maintain supercomputers utilizing only the most cutting-edge technology, it takes surprisingly little to destroy a data center facility: Poor Indoor Air Quality (IAQ) is at the top of the list. Poor IAQ systems can also be the largest detriment to operational expenses. Dynamic Air Quality Solutions V8 Air Cleaning Systems are an ideal solution for data centers, ensuring they no longer need to choose between air quality and efficiency.

According to a new report from Pike Research, the decision to lower costs by improving efficiency is a popular one for data centers, especially as energy prices continue to rise. The report indicates that the investment in greener data centers will experience rapid growth over the next five years, increasing from $7.5 billion in global revenue to $41.4 billion by 2015, or about 28 percent of the total data center market. Data center managers looking to grow and move with the trending market can do so comfortably with Dynamic Air Cleaners.

Historically, filter efficiency has been at odds with energy efficiency. This is not the case today. Dynamic Air Cleaners have the ability to improve IAQ and reduce electricity costs simultaneously by reducing fan energy through a lower system static pressure drop (resistance to airflow). The higher the pressure drop, the harder the HVAC system motor works to deliver the required air flow. A reduction in static pressure drop has a tremendous impact on energy costs. Filter media like those used in the Dynamic V8 Air Cleaning System produce pressure drops that are far lower than high-efficiency passive filters, while still maintaining high dust loading capacities. In the case of the Dynamic V8, it also means measuring filter change-out intervals in years instead of months. That’s a lot of operational savings.

“The tradeoff has always been between better air quality and more energy use,” said Duke Wiser, president of Dynamic Air Quality Solutions. “We design Dynamic Air Cleaners so a choice no longer has to be made. Our air cleaners use two-thirds less energy, require less maintenance and provide the highest level of indoor air quality available to protect data center assets and components, keeping them running efficiently.”

The Data Center Conundrum: Rising Resource Demands Versus Constraints on Space and Budgets

- Ben Rosenberg, president and founder of Advanced Systems Concepts (www.advsyscon.com), says:

In today’s economic climate, IT organizations are being forced to balance rising resource demands with constraints on data center space and budgets. They’re turning to virtualization, consolidation and new hardware to address the growing resource demand within the data center.

Consolidation boosts the need to automate manual processes, which has become a key initiative for IT organizations. The result is that job scheduling and workload automation technologies are moving to the center of integrating IT and business application processes with the integration of newer virtualized systems, all the while conserving resources, reducing costs and streamlining IT operations.

The flexibility of virtual environments, whether confined within a physical server or developed as a private or public cloud, presents complexity challenges in which simple run book automation is no longer the solution. Bringing virtualization and the cloud into the automation equation is the most effective way to automatically allocate resources to workload processing where and when it’s needed.

Workload automation solutions have become perfectly situated to assist companies in the transition from legacy technologies to virtualized environments. They serve as the automation engine to integrate applications and IT functions and allow IT operations staff to define and run sets of business processes between widely varied applications and technologies. Workload automation solutions provide behavioral insight like performance, availability and capacity factors that govern the execution of processes by analyzing service behaviors and triggering the appropriate actions.

Workload automation vendors are taking things a step further by marrying both predictive and reactive forms of resource management, provisioning and scheduling to transform the way virtual and cloud environments are managed and governed. This allows enterprises to leverage historical processing information to proactively configure their public or private clouds minute – by – minute, an ever-changing, completely tailored environment.

By ensuring that systems will be rapidly and accurately provisioned and virtualized enterprises can leverage the cloud to rapidly provision its internal infrastructure for upcoming load increases, whenever needed. Cloud-based systems will positively affect their hosts in terms of utilization and power consumption. Since the customer pays only for what it uses, there is an even greater incentive to obtain incremental resources in real time – and to disengage when they are no longer needed.

Today’s data centers and IT environments are at a tipping point, as the move towards virtualized and cloud computing environments will parallel the growth and importance that automation solutions will play in this distributed IT world. The ability to integrate existing infrastructure with newer technologies, all the while proactively provisioning virtualized and cloud systems on the fly via job scheduling and workload automation solutions will provide IT departments with the opportunity to reduce costs, streamline IT operations and increase productivity.

Managing Cash Flow With Strategic Efforts and Inventory Management Software

- Margot McClelland, Data Center Post guest writer, says:

How your business manages its cash flow is integral, especially in the early stages. However, it’s not entirely about making a profit but also learning how to manage goods. Many businesses have to deal with having their cash tied up in inventory and operating costs. It is common problem among new businesses to have revenue but still not be able to pay bills in a timely fashion. If this sounds like your situation, it will benefit you to read on to learn about strategic efforts like creating an effective accounts receivable system and using inventory management software.

The key to having positive cash flow is to first understand the time frame used by your company to convert inventory, sales, and overhead into an actual profit. This is called your cash conversion cycle. It is a common practice among businesses to use credit. Because of this, they must make monthly payments to entities they owe. So, the cash conversion cycle ends when they have received payment from clients and made payments to entities. Businesses should try to speed this cycle up.

When establishing an accounts receivable system, it is important to gauge how much your business can afford to extend to customers. For instance, if you have a certain amount in inventory, and the customer wants to buy a large portion of the stock on credit, you may want to demand cash or request that a percentage of the total be paid in cash. This will allow you the opportunity to sell to others that want to make a smaller purchase with cash or other verifiable currency.

It also helps a great deal to keep track of credit balances with aging analysis, which is a spreadsheet that determines who may owe you money and whether they are past due. This can be helpful when it comes to sending payment reminders and figuring out when to forward accounts to a collection department or agency. You could also request electronic bank transfer information from customers to ensure that payments are received automatically from them.

A good objective is to have enough monetary resources from customers to pay your company’s bills on time. Late payments can affect your company’s credit rating, which isn’t good news when you need to upgrade or expand.

One area of business that is challenging to keep up with is inventory. Doing so manually can be very time-consuming. There are many different types of inventory management software that you can integrate with accounting databases. These help with customer or internal inquiries about which items are currently in stock or on backorder. There are many ways to start and maintain a system that is easy for all team members to use. By looking into business self-help websites and similar resources, you can find an inventory management method that works best for you and your company.

The sooner you and your team agree on a method and software to use, the faster you will be able to divert your efforts to other, more important business pursuits.


Margot is a guest post writer on the subjects of general business issues and resources.

Setting Prices for Private Clouds

- Bryan Semple, CMO at VKernel (http://www.vkernel.com/), says:

Introduction
As more and more private clouds are deployed, organizations will face the requirement to implement chargeback or at least show back. Key to implementing chargeback is setting the chargeback rate. Much as pricing significantly impacts a public cloud provider, for the private cloud provider, the chargeback rate has significant implications. This white paper examines three strategies for setting prices for private cloud operators.

Setting Prices

Public cloud operators, or for that matter any business selling a product, set pricing based on the pricing triangle. The triangle contains three key balance points for pricing a product:

• Product or Service Cost – unless you are selling something as a loss leader, price is generally set above cost. The greater the delta between cost and price, the higher the margins. Determining the cost of IT services can be challenging. But in general, is a summation of computer, network port, storage port, storage space, power, datacenter space, software, maintenance, and support costs.
• Value – this is the perceived value of the product from the customer’s point of view. Segmenting the potential customers helps to determine what portion of the potential customer base finds the value of your product the greatest. Hopefully, this segment values the product greater than the costs and, this segment is large enough to drive significant top line revenue. For IT, the customer values tangible items such as up time, patch management services. The challenge for IT are the value items they are required to provide the corporation, such as compliance with back up policies, that the individual IT customer may not value.
• Competition – no matter the cost or perceived value to customers, competitors dramatically drive market pricing. It is possible to price above competitors costs provided the perceived value to a customer is there. Conversely, competitive pricing can reduce even the strongest value point. For IT, the competition is surfacing as public cloud providers.

A balanced approach with the triangle sets a price that provides sufficient margin, is defensible against the competition and has the customer seeing sufficient value in the price.

While the balanced approach is preferred for corporations selling goods and services, it may not be preferred for private cloud operators. Other pricing strategies could be:

• Cost plus pricing that ignores the value and competitive legs of the triangle. Cost plus pricing simply takes the cost of a product and adds a set mark up. For IT, this is the traditional chargeback approach.
• Value based pricing only looks at the value delivered to a customer yet ignores competitive pressures.
• Commodity pricing ignores all the value added services a vendor provides, and simply sets prices based on the offerings of competitors.

Pricing Strategies
Ideally, an enterprise uses the cost triangle to balance the three inputs to pricing and come up with the right price. But IT is not actually a true vendor and there is actually a hazard to pricing this way for IT services. Value, cost plus, or competitive pricing may actually be preferred based on the goals of the private cloud initiative for an enterprise.

So which strategy does one use? There are three pricing strategies for charging back or show back:

• Price to reduce sprawl and waste
• Price to push IT to operate as a business
• Price to enable open market competition between IT and outside vendors

We will examine each of these pricing strategies and how the pricing triangle may be different.

Price to Reduce Sprawl and Waste
By exposing the cost of resources consumed by a business unit, business units are motivated to reduce their spending to maximize their internal P&L. Inefficient consumption happens with VM sprawl and over allocation of resources to a virtual machine. Sprawl occurs simply because of the impression that “VMs are free” while over allocation of resources occurs when application owners insist on deploying the same resources to a virtual application as a physical application regardless of utilization.

What is the optimal pricing strategy to reduce sprawl and waste?

Since the goal is simply to reduce waste, coming up with a reasonable cost to deliver services and exposing that cost to end users is the optimal strategy. Since it is the act of exposing the cost that drives efficiency, there is no reason to charge the actual prices. Some logical formula that takes into account actual cost, then modifies the pricing to be below public cloud providers is all that is needed.

Why price below public cloud providers? Pricing significantly above public cloud providers could actually introduce an incentive for internal customers to seek out external providers. Since external providers many times don’t meet the compliance requirements of a private cloud, this would not be a preferred result. Since the goal is simply to reduce waste and not compete on the public market, pricing more than public providers is not a good strategy. By adjusting the actual internal costs, pricing less than the competition, and simply highlighting the value added services, IT organizations can achieve the goal of reducing waste without driving their customers to external providers.

There is a hazard, however, with charging back in all these scenarios. Once an IT group charges back, they lose some amount of control over the resource. For an individual business unit, wasting 30% of an IT asset could be a minor line item on their balance sheet not worth the trouble to correct. For the IT group, however, if every business unit wasted 30% of their IT resources, that adds up to significant waste for the company. So although chargeback is in place, retaining the ability to force corporate wide efficiency must be maintained. One VKernel customer actually charged a higher rate for wasted resources than efficiently used resources.

Price to Push IT to Operate as a Business
For this second strategy, the pricing triangle actually provides good guidance on how to price. Assuming internal customers are not permitted to use competitive offerings from sites like AWS, setting prices to cover costs makes the most sense. Since IT generally provides many additional services that external providers do not provide, internal costs tend to be higher than competitive offerings. So it is important to actively market the added value IT provides. Exposing actual costs will push IT to reduce these costs over time which is good, but also provides IT with a platform to market the added value services they provide. The same hazard exists with internal customers wasting resources as it did with goal #1. And, despite IT directives not to use outside vendors, public cloud operators will start to make progress in rogue business units.

Price to Enable Free Market Competition with External Vendors
This goal is perhaps the most challenging for IT but also a requirement for organizations looking to implement advanced hybrid clouds. External competitors like Amazon are generally cheaper than internal IT. But they also don’t offer all the value added services. However, some of these services may not be valued by individuals inside the corporation. Rogue development organizations may not care about esoteric compliance requirements. If IT operates in the free market without significant marketing to explain the need for higher internal IT costs and the value add it provides, end users will go for less expensive services, but also place corporate assets at risk.

Pricing in this model would be to price at cost or best case at a competitors pricing. IT would then market the value added services to end users. In this model, applications move between internal private clouds and public clouds based on the lowest cost. Hence the hybrid cloud label. Despite the theoretical efficiency, there are many pitfalls with hybrid cloud/market based pricing. Is IT still responsible for an application owner who moves his app to the public cloud for lower prices yet fails to recognize the public cloud provider does not meet compliance requirements? The list of hybrid cloud pitfalls is long, but the pricing strategy in this case is the most pure of the three.

Common Benefits and Pitfalls
Whichever goal and pricing strategy is selected, there are common benefits and pitfalls:

Benefits

• All models require determination of actual IT costs per virtual machine. This is an invaluable exercise.
• All models require an inventory of the value added IT services such as compliance, back up, patch management
• All models require marketing value added services

Pitfalls

• Loss of control that pits the greater good of the company vs. individual end users. Once end users are “paying” for a service, they can waste it. Allowing internal IT to push for across the board efficiencies is important to contain IT spending.
• Easy comparison to public providers - exposing cost information provides an easy comparison for end users to compare internal prices with public cloud providers. This ease of comparison invariably will drive internal customers to select external providers for cost reasons or at least question why the internal resources supposedly cost so much.
• Charging back provides context for people to depart the corporate standard to “save money”.

Conclusion

Selecting a pricing strategy for IT is challenging. Understanding the goal of chargeback and show back is the starting point to select the proper pricing strategy. Care should be taken to avoid pitfalls and while harvesting the benefits of a more rigorous financial approach to delivering IT services.

How one of the ‘Top 20 Cloud Infrastructure Vendors of 2011’ Found a Better IT Management Solution

- Steve Harriman, senior vice president of marketing at ScienceLogic (ww2.sciencelogic.com), says:

As enterprises with large-scale applications or content adopt cloud computing and managed services, the costs to properly monitor, analyze and report on availability and performance become more challenging and more expensive. That challenge and its associated cost was just one of many reasons Stephanie Tayengco, Vice President of Network Operations and the Logicworks team sought a better IT management solution.

Logicworks, named one of the ‘Top 20 Cloud Infrastructure Vendors of 2011,’ provides enterprise managed hosting and managed cloud computing solutions for its clients’ (including Dow Jones, Starwood Hotels and Radar Online) mission-critical applications and content.

Logicworks sought a comprehensive solution that would enable the company to provide its enterprise managed hosting customer base with advanced monitoring options as well as improve operational efficiency. So the managed service provider (MSP) turned to the ScienceLogic EM7 platform to provide them with a holistic view of performance across their entire hosting infrastructure, and alert them to the most critical issues facing their clients.

Tayengco said, “ScienceLogic will be very attractive in retaining existing clients and winning new ones. The ScienceLogic automated reporting alone will enable us to better communicate our value proposition to clients using clear and measurable metrics to illustrate the level of service we provide. It will also allow us to make better recommendations based on each customer’s specific usage patterns helping us in our goal to be a proactive extension of their IT operations.”

The Logicworks Network Response Team and Operations Center engineers will manage the use of ScienceLogic EM7, which will provide a 24/7 view into how the team is providing services to end customers. This will enable them to pinpoint the root cause of potential problems more quickly and identify trends before they became issues for clients. EM7 will also automate the provisioning of monitoring services for the Logicworks infiniCloud™ public cloud offering, as well as Logicworks’ private cloud and enterprise managed hosting services. Logicworks Managed Database Services for hosted Oracle, MySQL and MS SQL Server will also be enhanced by ScienceLogic EM7.

These management and automation capabilities will free staff to work on more strategic projects, including using EM7 to create an advanced server monitoring service and a more in-depth application monitoring offering for customers. In addition, the Logicworks Client Services Group will use EM7 to deliver customized, automated reports that detail service levels and usage trends to clients, giving them better visibility into their cloud and hosting infrastructures.

In the dynamic world of cloud computing, MSPs need to be able to easily create differentiated services, onboard new customers quickly, increase the proficiency of their IT operations and deliver exceptional customer service across virtual and cloud computing resources – without the time and expense of integrating multiple management tools. ScienceLogic EM7 provides Logicworks with the customization and automation capabilities needed to achieve these goals with a single solution that saves time, money and precious resources.

Tax Benefits of Modular, Portable Data Center Physical Infrastructure (DCPI)

- Waite Ave, managing partner with Universal Network Services (http://www.apcdistributors.com/), says:

Tax and tax related asset management strategies create a significant impact on the total cost of ownership of DCPI. Modular, scalable UPS systems, PDUs, and computer room air conditioners have not only created technological benefits, but provide entirely new DCPI tax and asset management opportunities with direct and measurable financial benefits.

WHAT IS COST SEGREGATION?
Cost Segregation is a strategic tax savings tool that allows companies and individuals, who have constructed, purchased, expanded, or remodeled any kind of real estate to increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.

WHAT ARE THE BENEFITS OF A COST SEGREGATION STUDY?

• Generates immediate increase in cash flow through accelerated depreciation deductions.
• Reduces income taxes and can also reduce real estate property taxes.
• Provides an easy opportunity to claim ‘catch up’ depreciation on previously misclassified assests.
• Provides an independent third-party analysis that will withstand IRS review.

Cost segregation, is an exercise in recognizing and separately accounting for the costs of 5, 7, 10, 15, and 20 year property from the 30-39 year property classifications. The property in each of the classes from 5-20 years, once properly identified, are eligible for accelerated depreciation. This allows a business, institution or organization paying corporate income tax to further increase deductions during the early life of the equipment.

Organizations that own high technology assets can benefit the most from exercising cost segregation strategies, so long as each asset can pass the function and use test and the inherent permanency test. Modular, scaleable, factory built Data Center Physical Infrastructure (DCPI) performing the mission of a business routinely pass both tests with ease.

Tax and tax related asset management strategies create a significant impact on the total cost of ownership of DCPI. These savings are entirely separate to gains in energy efficiency. Successful implementation of cost segregation strategies involves a financial professional along with the IT professionals, and facility managers involved in the deployment of DCPI.

Five Capacity Management Challenges for Private Clouds

- Bryan Semple, CMO at VKernel (www.vkernel.com), says:

Introduction
Organizations that are seeking to deploy “cloud” based business models for their infrastructure face unique capacity management challenges. This post will review these challenges to enable cloud providers, either public or private, to avoid the pitfalls of improper capacity management. While the post discusses both types of clouds, the needs of private cloud providers will be especially highlighted due to the unique challenges they face with this business model.

IT Becomes a Business within a Business
For years, we have been hearing “IT must behave more like a business”. A hypervisor’s ability to deliver utility computing moves this vision closer to reality. Using hypervisors to deploy an infrastructure cloud fundamentally changes the relationship between IT and their customers. Application portability combined with competing cloud offerings from companies like Amazon change the dynamic between application owners and corporate IT. If end users can’t explicitly move their applications between cloud providers, they can at least compare prices and service levels between providers. Right or wrong, Amazon S3 becomes a measuring stick in price, performance and service for IT organizations.

To deliver an Amazon S3 experience, requires significant retooling in IT processes. Capacity management is one of the areas requiring retooling. Virtualization alone causes changes to capacity management (for more information, see http://www.vkernel.com/solutions/capacity-planning). But virtualization deployed as an infrastructure cloud adds nuances to the capacity management problem. Capacity management for cloud providers is unique for the following five reasons:

• Capacity monitoring in addition to planning
• Chargeback is mandatory
• Efficiency drives return on assets
• Tenant reporting requirements are unique
• Optimization is a value add

Variable Demand Drives Criticality of Capacity Monitoring
Cloud deployments of virtualization technology introduce many operational changes for IT administrators. The first is a change in the amount of control IT has over the loads deployed on their hardware. With cloud deployments, either public or private, end users deploy applications using self service portals as they see fit, load them as they desire and consume resources at whatever pace they need.

Hence, unlike the careful P2V sizing process undertaken for the first wave of virtualization where applications are sized, scheduled and deployed in a methodical manner, clouds have no careful sizing or timing that the cloud operator is aware of. Applications of unknown sizes appear, consume resources, and may just as quickly disappear. Without adequate capacity, these applications will fail to perform to customer expectations. Without real time capacity monitoring, application deployment can dramatically impact other applications.

Hence capacity planning, a well thought out process for making sure there is sufficient capacity en masse, must be supplemented with capacity monitoring. Capacity monitoring is a real time process that takes raw performance and utilization data and transforms it into actionable information concerning system level capacity requirements. Without capacity monitoring, system administrators are left to interpret real time utilization metrics from individual virtual machines. VKernel’s research has shown that properly monitoring capacity in real time involves collecting over 20 metrics per VM at least 10 times per hour, and keeping this information for at least 30 days. A 100 VM environment would require about 17 million data points to accurately monitor capacity in the environment. This capacity monitoring, however, is a must have to augment standard capacity planning and prevent performance issues from impacting the cloud.

Chargeback Matters
For any cloud where resources can be deployed in a self service fashion, charging back for resources becomes a necessity. Without a method to chargeback or show back, self service clouds would quickly find themselves at capacity since resources are essentially free.

But chargeback is a tricky area. For commercial cloud and private cloud operators, charging back for allocated resources is fairly straightforward. But, since the private chargeback operator is simply shifting costs insides the company and not impacting the bottom line, the motivations for chargeback are different. The public cloud operator is indifferent to allocated resources and utilized resources. If the public cloud operator is charging for an allocated resource pool, they make money. In fact, the higher the ratio between allocated and utilized, the more over allocation of resources is possible and the higher the profit margins. For private cloud operators, however, the goal is to actually lower the costs for the company. Hence, the private cloud operator wants the allocated resource usage to be very close to actual usage to drive resource efficiency. Highlighting the difference between actual resource usage and allocated resource usage shows internal business units the amount of corporate resources they are wasting. This motivation can then be used to right size environments and reduce overall IT spend.

While chargeback is important, cloud operators need to be mindful of what they charge. For public operators, there are competitive pressures. For private operators, charging provides a manner to directly compare internal IT costs vs. external costs such as Amazon.
But is a simple $/CPU comparison between internal clouds and Amazon a fair comparison? Does Amazon contain the same level of compliance? Control? Is the company comfortable with data outside the company firewall?

More importantly, chargeback for private cloud operators is primarily a means to minimize the difference between allocated and utilized resources to drive up efficiencies and VM densities. Chargeback or showback becomes a control mechanism as opposed to an actual financial transfer mechanism. Hence the rate of chargeback is not as important as the difference between allocated and actual usage.

However, even here, the challenges for private cloud operators are greater. Let’s assume a private cloud operator hosts 200 internal customers. Assume each of these internal customers is wasting 50% of their resource allocation. On an individual basis, the absolute value of the wasted resources may be insignificant. But across all 200 customers, the magnitude of the IT spend could be quite large. The greater good theory for IT would require that IT actually reduce resource usage for all the internal customers to claim additional savings for the company despite what the internal customers want. Private cloud operators must operate for both their internal customers needs, but also for the company’s needs.

Setting rates for chargeback is the final tricky area for cloud operators. For a public cloud operator, the rate needs to be competitive, provide some profit margin and match customer’s value. Easy enough. But what about private cloud operators? Once again, being a private operator makes things difficult. What are the rates for chargeback for a private cloud operator? Is the goal to set rates to make an internal profit when 50% of the VMs slots are filled? 75%? But if the internal cost center is making a profit, is that the right thing to do from a budgeting standpoint? Is the goal cost reclamation or efficiency?

The net of this, is that for cloud operators, chargeback is critical. For private cloud operators, chargeback’s purpose needs to be clearly defined to align IT not only with their customer’s goals, but also the broader corporate goals.

Capacity Planning Impacts Revenue and Cost
Customers expecting to use a cloud service have high expectations with regards to time to deploy a service. For public clouds, this expectation will be a nearly instant deployment after the service request. Private cloud operators may not have quite such an instantaneous expectation for their customers. Either way, however, the “acceptable” wait time of several weeks to deploy a new server is gone. Immediate is the word, not days.

To enable this immediate capability, sufficient capacity must be on hand to deploy new virtual machines based on both steady state and unexpected increases in demands. To meet this accelerated time duration, a high degree of capacity planning must take place to predict future capacity needs ahead of demand and allow for the slower process of procuring and installing physical servers, networks and storage.

It is easy to meet rapid deployment expectations by over procuring hardware. The danger here is that over procurement impacts cash flows and profitability for a cloud. Having large amounts of depreciating assets sitting around is not a sound business strategy. If these assets are plugged in and configured, the added power costs worsen an already bad situation. Under procuring hardware is just as bad since cloud operators will be unable to meet customer needs should their systems not have available capacity. Hence the goal is to have a solid understand of consumption and then apply a safety factor to allow for unexpected demand.

Understanding capacity needs across the entire IT infrastructure is important. But it is just as important to understand where there are available VM slots for best placement of VMs both from a performance and capacity standpoint. Utilizing available VM slot reporting ensures both performance of the running VMs but also increases the VM density per host which is critical to achieving a high return on assets.

Capacity planning is critical to cloud operators to generate a high return on assets while also meeting customer demand for near instantaneous deployment requests.

Tenant Reporting
With a standard virtualized environment, the IT organization may report on environment status to a few senior IT leaders. Not so with an infrastructure cloud. For public clouds and private clouds, there is a greater expectation of visibility into the environment. Reporting for cloud tenants could involve availability, resource allocation, resource utilization, current charges, and pricing plan. The amount of information revealed to a customer could depend on the business philosophy or type of cloud. For a private cloud, revealing differences between allocated resources and utilized resources and the savings a customer could achieve by reducing their resources allocation makes sense for a company trying to save money. For a public cloud provider, however, suggesting ways to reduce resource allocations may not be in the provider’s interest.

Beyond questions around what type of information to provide is the manner in which information is provided. For public cloud operators, online portals are most likely the reporting distribution mechanism of choice. For private clouds, however, information needs to flow seamlessly into the enterprises existing reporting infrastructure. This could involve connections with sharepoint, with IT service management frameworks, internal portals, or simple email distribution of reports on an ongoing basis.

Optimization is a Value Add
Many times, when virtual machines are first deployed, they are over allocated CPU, memory and storage. In a cloud deployment, this over allocation does not cost the cloud operator revenue. In fact, just the opposite occurs. The cloud operator deploys the requested resources, but despite not being used, the cloud operator still collects the revenue. As discussed earlier, the cloud operator can decide whether to reveal this to the tenant or not.

While the cloud operator may not care about wasted resources to an application, the end customer does as does the firm’s CFO. Decreasing requested CPU, memory and storage reduces monthly tenant costs. Hence, optimization becomes an optional value add service for the provider to offer tenants to reduce spending. This would be the equivalent of your cell phone company contacting you to suggest a lower monthly plan. While it lowers the monthly revenue of the cloud operator, it dramatically improves customer loyalty.

Conclusion
Because of the increased need for chargeback, monitoring, capacity planning, and reporting, capacity management takes on added urgency for cloud operators. Capacity management performed correctly enables cloud operators to maximize compute cycles delivered to a customer at the lowest possible cost and thus, capacity management is a key building block for any cloud implementation.

Business Process Automation: Emerging As Its Own Market

- Mihir Shukla, founder and president of Automation Anywhere (www.automationanywhere.com), says:

Our customers tell us that analyst reports are true: IT & Operations budgets in the last 4 years have increased only 22%, while IT workloads have increased 165%. CIOs are saying "do more with less." Automation is the often the answer.

As automation tools become more powerful, true unattended automation in the data center is accessible and possible. Automation tools used to be a small sliver of the $8 billion Business Process Management (BPM) space, but we feel as automation tools themselves become less expensive and more powerful, they are emerging as their own market that we call Business Process Automation (BPA).

BPAs are having a profound impact on data centers. For example, 40% of alerts are repetitive and can be avoided and/or solved via automation routines eliminating fire fighting, reducing cost, improving response time and customer satisfaction.

Every data center IT professional should at least explore automation tools. With the emergence of cloud computing and the explosive loads on the datacenter, automation helps you scale and keep your margins.

Customers who use Automation Anywhere in the data center report 6x gains in efficiencies. These include cost savings, reduced error rates, more easily tracked compliance and automated troubleshooting.

Once a data center manager starts to see how easy it is to automate a multitude of tasks, things start to fall in place quickly. The biggest challenge is to start realizing how much can be automated in the data center using the latest breeds of business automation tools.

Automation is a significant opportunity right now. People in data centers should look at all BPA automation tools on market today and explore how these tools can free up time. If you work in data center you could use that time in much more strategic ways.

We encourage IT and data center managers to look around. If they pick the right BPA tool, they will see a multitude of benefits.

For example:

- Look for BPA tools that can recognize the intent of a particular task and adjust accordingly when the environment changes.

- Find a tool that current and future staff will find easy to use: The best tools today offer easy drag and drop interface.

- Integration in today's environment is critical. It is well within the grasp of leading BPA tools to orchestrate processes between ANY applications. When you have to shop around or develop your own connectors and adapters, you will be wasting time.

Solving Day-to-Day Data Center Issues

- Terry Fockler, Silicon Valley Engineering/Solutions (terryfockler@sbcglobal.net), says:

Data center operators face many and constant issues requiring persistent attention, great solutions, and necessary relationships to facilitate those solutions.

Data Center managers often have to decide what to do with decommissioned hardware (being assured that it does not end up in land fill). EOL (end of life) hardware is a reality. When disposing of decommissioned gear it's important to select a company that will provide chain of custody documentation to insure proper disposal or repurposing of your outbound gear. Another concern is having to guarantee that data mitigation is complete and certified.

Another issue is data center efficiency and energy savings. There are energy and cost savings programs and efficiency surveys that can save an IT or data center manger a ton of money. Silicon Valley Engineering Solutions offers various data center services and products to help data centers save money. Our many cost savings and safety programs can make an IT or data center manger's life much easier.

Another area of concern is upgrading and financing aging gear. Some companies specialize in difficult projects, providing easy financing and logistics for refresh programs. Yet another area of cost that is often over looked is software licensing...this can be a huge expense that can be mitigated and Silicon Valley Engineering Solutions offers programs that will assist in renegotiating your licensing agreements resulting in potentially huge savings.

For more portable applications (that is, Triage, corp. enviro’s, banking etc.) modular, self contained portable data centers are a good option for expensive infrastructure.

The bottom line is: ilicon Valley Engineering Solutions brings a one-stop solution for many product and service needs for colo’s, data centers and corporate enviroments.

Prescription Before Diagnosis

- Tim Peterson, financial advisor of IT Risk Management with Systems Maintenance Services (www.sysmaint.com), says:

When you visit a doctor and tell him or her that you have had a cold for over 2 weeks and all they do is prescribe an antibiotic without getting a full diagnosis about you, they could be really missing something. Hence the title of my report. So is the case today for service organizations trying to help companies in their data centers.

I have been in the IT Service Industry for 25 years and I am still surprised on how many articles I have read regarding Independent Service Organizations / TPM’s that continue to only emphasize saving clients 30-60% on hardware service contracts for IBM, Dell, EMC, Cisco, HP, etc.

This type of selling and marketing was pretty effective 10 years ago due to the extreme costs the manufactures were charging for service. Typical scenarios from a service company would be to obtain a clients current service contract or they may have the actual pricing on what the manufacturing charges for service and simply knock off 50%. "Here you go Mr. Jones; I just saved you a ton of money!"  Over the years many service organizations prospered with this type of methodology. But as time went on a fair amount of these companies either went out of business, or had to merge with other service companies in order to survive.

Today’s IT environment is completely different. Some OEM’s have decreased the amount they charge for maintenance, while others lock in clients for long terms with "no way out" and so on. In most cases the client does not have a complete understanding of what they are actually paying for, so every month or year they simply just issue a new Purchase Order.

Service organizations today should be representing themselves more as a Financial Advisor / IT Risk Management company. This involves a diagnosis. Take the time to look over a service agreement with your client. Hardware maintenance is only a small piece. Pay close attention to the software maintenance as well. Most OEM’s will never explain this piece of the contract.

I have provided two examples for you. Hewlett Packard and Cisco:

Client A is paying HP for software maintenance on their HP PA-RISC or Itanium servers. The future of HP-UX is tied to the Itanium processors. At this point all of the other OS providers including most recently REDHAT have bailed out on Itanium. This leaves HP alone going forward on Itanium. Even there the vast majority of the HP-UX installed base is still on PA-RISC with no plans to purchase Itanium upgrades. If HP had a solid marketing plan for HP-UX they would guarantee investment protection on Itanium upgrades.

The current version HP-UX 11iv3 will execute on only a limited portion of the later model servers. This is a well worn HP tactic to force the installed base to purchase system upgrades they wouldn't purchase otherwise so that they can run newer versions of the HP-UX operating system.

HP claims the only way to get OS updates is to stay on support with HP.

First, for the PA-Risc systems (all models that don't start with RX) this is a flat out lie! PA-Risc processors have been discontinued by HP. No new OS versions will ever be produced beyond 11iV3 that will be executable on PA-Risc.

Second, for the Itanium systems (all models that start with RX) the customer has THREE cost savings alternatives to paying per month for software subscriptions that may never be applicable to the current system or ever installed by the customer.
 

–        They can purchase it outright at software.hp.com

–        If they need new OS version they can purchase a used server that would come with the new OS.  (most popular)

–        Why upgrade at all? Instead of investing efforts to update to a new version of HP-UX many customers will elect to switch to other platforms such as Linux or Windows. These decisions are mostly driven by application software vendors and cost savings associated with less expensive support on these platforms.

HP is misleading customers to believe that they need to pay for support to get patches.
HP-UX patches have always been free and available at ftp.itrc.hp.com.
Why? The patches are to fix defects that HP distributed in the software they sold. Freely available patches allow HP to avoid liability. They can simply claim that customers should report problems and they produce and publish patches.

HP is telling customers that only HP has access to 'diagnostics'.

HP-UX comes with a complete set of user accessible diagnostics and monitoring software. The 'diagnostics' they are referring to are low level component diagnostics. The only reason that one would require these diagnostics are to prove root cause of component failure and attempt to reset or repair board level components.

It is amazing that HP service techs will actually extend customer down time proving that a faulty part is really faulted. They do this instead of just replacing a board because if they send a replaced part back and it proves to be good then the service tech is rated poorly.

Did your client know this?  Probably not, why would HP want to stop charging for updates? 

Client B is paying Cisco for SmartNet on their Cisco 2960 and 3750 switches. Was your client aware that these core switches have a lifetime warranty on IOS updates and can be downloaded by themselves or by the service company at no extra cost? Is your client aware that there are other service programs offered by Cisco that allows you to obtain IOS updates and TAC support other than SmartNet?  Not likely. Cisco thrives on only selling SmartNet.  SmartNet contracts increase every year by an average of 15%!  This tactic is used not only to increase revenue for Cisco but it now puts them in the position to force you to upgrade after about 3 years and you may not need to. 

Now you are starting to sound like a Financial Advisor and not just a price slasher!

This type of methodology will now open the door for you on additional opportunities and gain tremendous amount of respect you with your client.

Data Center Budgets Are Not The Problem - It's Often The Budget Process

- Darin Stahl, Lead Analyst with Info-Tech (www.infotech.com), says:

Many IT budgets focus on the near-term CapEx and the twelve month OpEx. This often creates a budget where new business initiatives are vetted but past business strategies are not revisited through a needs analysis, so they become a part of the ongoing OpEx. But then IT leaders are held accountable for the long-term costs associated with past business strategies.

Here is a simple example to illustrate the challenge introduced by the process:

The Data Center is asked to provision a new physical server to support a Microsoft SQL/Server environment for business reporting. The new server and software (OS, RDMBS, etc.) vetted through the CapEx process is $32,213. Typically that is the budget amount discussed upfront by IT and the business. The total 5-year cost to support that business initiative (CapEx + OpEX) is approximately $35,668. At first glance the $3,455 not described in the budget process doesn’t look like a big deal. But, if a lack of costing for the 5-year totals costs is the standard practice – multiplying that amount across 50 or so servers in a mid-size enterprise it becomes a significant OpEX pain point to the IT leader through the annual budgeting process.

A way out of this problem is for the IT leader to reshape the dialog with their business to align costs with business services.

• Begin with the premise that the yearly budget process decides if IT will have the staff and dollar resources necessary to deliver expected services.
• Fully understand the organization’s accounting approach before preparing the budget.
• Example the various budgeting methodologies and choose the right approach for their situation (e.g., Incremental, Zero-based, Top-down, Bottom-up). Info-Tech customers report success with a hybrid approach that integrates CFO guidance, departmental input, historical data, and expense projects. No one single approach is successful on its own.
• Follow six simple steps to ensure your data center budget includes resources needed to meet organizational goals:

o   Calculate Current Costs

§  Expenses to date

§  Year-end forecasts

§  Pricing changes

o   Determine Required Changes to Expected Services

§  Volume changes

§  Dropped activities

§  New initiatives

§  Contingencies

§  Cost increases

o   Develop Estimates

§  Budgeting scope

§  Cost-saving opportunities

§  Changes to current costs

§  Cost of projected changes

o   Create and Submit Budget Proposal

§  Identify constraints

§  Detail Capital vs. Operating

§  Highlight discretionary vs.  non-discretionary

§  Include effective rationale in business terms

o   Negotiate

§  Prioritize projects with business units

§  Negotiate with executives to close the gap between the requested amount and the approve amount.

o   Deal with the Final Approved Budget

§  Adjust your scope and priorities

§  Find further cost-reduction opportunities

§  Reduce the proposed contingencies as the situation becomes clearer.