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How to measure the cost of running applications

Technology business management is a bridge between finance and IT that provides visibility and transparency into the cost of technology.
Person typing into a calculator

Hybrid cloud offers speed, scale, security, and simplicity, so you may be excited to step into this journey with a full backpack of your applications. Before you begin, can you answer the following questions?

  • Do you have visibility into the total cost of running your applications?
  • Do you have insight into the average cost of running your applications across different platforms and different locations?

You need to know these things to create the right map to guide your hybrid cloud journey.

[ Discover ways enterprise architects can map and implement modern IT strategy with a hybrid cloud strategy. ]

Hybrid cloud platform owners need to understand the true end-to-end cost of what it takes to run applications and support vital business functions. They need to understand the budget and the cost of Platform-as-a-Service, applications, and projects instead of general ledger-based costing departments and minors.

Technology business management (TBM) is a bridge between finance and IT. TBM is a framework that combines taxonomy, modeling, metrics, and unit economics to provide full visibility and transparency into the cost of technology. This combination helps to drive and support enterprise agility; business value conversations; and management, planning, and optimization of the cost and quality of technology investments.

3 ways measuring IT's value helps us make better business decisions

IT needs to be able to measure, optimize, and operationalize management practices for spending—both for traditional on-premises solutions and cloud-based IT. Measuring IT value is a metric-driven endeavor. One example is measuring the total cost of ownership (TCO) of applications and IT. The outcome can be a change in the conversation with the business around trade-offs, IT complexity, and variable spend.

[ Learn 5 ways architects can maximize committed cloud spend. ]

Our IBM CIO Hybrid Cloud team decided to deploy TBM to benefit our day-to-day business. We wanted a tool to help us consolidate financial and operational data into a single platform, creating a business-centric view of IT spending, and we selected Apptio SaaS.

The implementation helped us provide information and drive better business decisions in the following ways.

1. Makes TCO transparent for platform owners and application owners

By pulling from the costing department and the general ledger, we can group financial data into four big buckets: Labor, Vendor, Fixed assets, and Other. The application connects other billing data into this single financial dashboard, which dramatically increases our efficiency.

The most important question is, "What do those financial numbers really mean to IT?" The cost transparency models provide an industry-standard taxonomy to translate financial data into IT Resources Towers, such as Compute, Storage, Datacenter, End user, Platform, and Network. These models make it easier for IT leaders to understand the cost of specific IT elements.

[ Learn how to build a flexible foundation for your organization. Download An architect's guide to multicloud infrastructure. ]

2. Connects IT supply and demand

For application owners, understanding an application's total cost of ownership (TCO) will help support strategic planning and hybrid cloud solution selection. For hybrid cloud platform providers, having insight into total capacity cost and utilization by consumers is the first step to understanding the unit rate and unit cost and recover total costs through a chargeback process (a common internal finance process).

By understanding how the platform cost depends on the business volumes and the excess capacity cost, platform owners can converse with application owners to effectively shape their demands. Instead of asking, "Why should I deploy on this platform when it's more expensive than the others?" the narrative can change to, "Is this the correct amount of units I need for my application?"

3. Funds innovation and reinvestment back into the business

By doing the above, application teams can better manage their budgets while simultaneously generating the most value from deploying to the hybrid cloud platform. Platform providers can optimize costs by shaping consumer demands. They can reinvest those savings into innovation projects or new technologies to bring application teams more advanced capabilities while making the whole business engine run smoother and healthier.

Wrapping up

If you're starting your hybrid cloud journey and want to enable application and platform teams to make better, faster, data-driven decisions during their migration, your organization may want to consider adopting TBM. It can help you:

  • Create consumption transparency of your IT resources.
  • Create a connection between the supply and demand of your IT resources.
  • Enable you to reinvest your savings into new and innovative technologies.

We've really been enjoying the amount of information we're getting to allow us to make the right decisions at the right time.

[ Plan your next cloud project based on your current cloud results by asking these 4 essential cloud project questions. ]

This article originally appeared on Hybrid Cloud How-tos and is republished with permission.

Topics:   Cloud   Business   Strategy  
Author’s photo

(Summer) Yu Gu

Summer has been with IBM since she graduated with her MBA nine years ago. She has been leading the project of implementing TBM and deploying the Apptio tool for CIO Hybrid Cloud Platform domain since 2020, which has now expanded across the whole CIO. More about me

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