A new trend is materializing: IT-as-a-Service (ITaaS), driven mainly by a desire to manage the IT life cycle across software, platform and infrastructure categories. As IT is increasingly becoming both usage and service based, a variety of pricing models have emerged based on bandwidth, transactions, scope of resources, access events, number of users, services and accounts. To help manage the complexity that comes with the requirement to manage expenses, handle financials and ultimately support end users with visibility, many enterprises have turned to a historically proven solution type to support the management of a broader set of IT services, inclusive of cloud expenses.
Telecom-expense management (TEM) has increasingly been adapted to include new IT spending and asset categories resulting from the crossover in device and unified communication solutions. Thus, to address the entire life cycle for enterprise IT, businesses should employ the best practices and expertise established by TEM vendors. What’s more, TEM vendors must accept that their role now encompasses IT-expense management, which includes cloud- and telecom-expense management, creating a new category known as ITEM.
Consider the similar challenges of TEM and cloud-expense management:
- Usage-based billing
- Identification of billing errors and contract discrepancies
- Cost creep and overspending
- “Always on” assets resulting in overage charges
- Unused assets generating sunk costs
At its highest level, cloud-expense management handles the relationships and controls expenses from a supplier.
A real-life use case: A world-renowned institute of higher education implemented a public-cloud strategy with Amazon Web Services (AWS). Its central IT team wanted to help its internal clients optimize their use of AWS. Like most users of cloud services, the team was challenged with a multitude of accounts spread across many departments, as well as the myriad billing formats based on pay-as-you-go agreements where the bill includes recurring, nonrecurring and usage-based charges.
The university took the first logical step. It consolidated all accounts by implementing a single shared-service account encompassing the activities for all the departments using AWS. As a result, the university receives the detail-based charges as one aggregate bill. But it was still unable to centrally coordinate service activation, feed the charges directly into its general ledger on the basis of department or actual usage, or meaningfully optimize the services for which it were paying. Plus, departments lost visibility into their own usage from their individual accounts. This is where the university was able to take advantage of its existing TEM solution.
The university worked with its TEM vendor to import data feeds from AWS into its solution, which in turn used its expense-management and financial-allocation engine to uncover better insights and reduce costs.
Like this university, many organizations are putting their TEM solutions to the test. To optimize costs, they have looked to processes inherent in TEM to accurately manage and make decisions about the way they configure their cloud payment models. Below are some common cloud payment models and ways they should be optimized using a TEM solution:
- On demand: Pay for compute capacity by the hour, no long-term commitments
- Who should use this model? Those with sporadic workload spikes and those who need to define initial needs.
- Why do people like it? Convenience of service, ease-of-use.
- Reserve: Make a low, one-time payment and receive a discount on the hourly charge
- Who should use this model? Those with a need for continual utilization.
- Why do people like it? Committed payment, use for a definite time, lowest cost of the three models.
- Spot: Bid for unused capacity, charged at spot price, which fluctuates on the basis of supply and demand
- Who should use this model? Those with time-insensitive or transient workloads.
- Why do people like it? Less expensive than on demand and complete after the agreement date passes.
With the traditional TEM discipline evolving into ITEM—based on redefining in-house technology investments, the concept of technology and resource ownership and how the organization measures and pays for consumption—companies must recognize how to appropriately manage those services and expenses. When using ITEM to manage cloud services, organizations can get granular with the data, then roll it up in a meaningful and actionable way. Here are some best practices to help optimize cloud services:
- Get granular for department-level insights: AWS and other cloud tools have their own dashboards and analytics. When you need more detail into specific departments or granular usage-based charges, you’ll benefit from importing the data into an ITEM solution that has purpose-built visual analytics with more-detailed visibility.
- Payment-model optimization: You’ll understand the benefits and disadvantages of on-demand, reserved and spot-payment models. The goal will be to optimize your usage on an enterprise scale in accordance with what’s best for your business.
- Stakeholder chargeback support: Your internal stakeholders will want visibility at some level. You can support the organization through usage-based shared-service chargeback capabilities. Reports or bills can be created at both the summary view and at the detailed line-item view. This capability will help you increase transparency and accountability by sharing the costs of cloud-based services, while promoting more engagement and self-governance.
This approach of aligning IT life-cycle management with business objectives is new to the rest of the IT world, which in many cases continues to focus on technological administration challenges and one-time asset purchases. As this trend continues, an evolution will occur from supporting automation of invoice processing for cloud services to progressively including additional IT management through reconciliation of charges, cost identification and predictive cost modeling. And while the rest of the industry is catching up, take a look at your current TEM vendor to begin optimizing your IT expenses.
About the Author
Larry Foster, Product Strategy and Vision, Calero Software, integrates market knowledge, strategic insight and a strong user focus to help create cutting-edge products that deliver exceptional value for customers. He also oversees customer product advisory. Larry held previous technology leadership positions as IT director, business consultant, VP of Operations and VP GM at PAETEC Software. In March 2015, he was inducted into the Telecom Expense Management Industry Association (TEMIA) Hall of Fame.