Wikibon research shows that the presence of a chargeback system has a major impact on how organizations approach infrastructure. There are at least two models for chargeback:
- Fixed-rate chargeback, which is determined at the beginning of the year and is based upon a point-in-time estimate of the cost to operate dedicated resources used by the business unit.
- Metered chargeback, which reflects the units (i.e., GBs in storage) of resources a business unit or application actually consumes from within a pool of shared resources.
Fixed-Rate Chargeback From a business unit perspective, fixed-rate chargeback has the benefit of being a known, predictable cost. While it may be adjusted on an annual basis, at least for a given budget year there are no surprises. IT management may have an incentive to pad the fixed rate to allow for unanticipated increases in requirements but little incentive to take advantage of cost-saving technologies except during annual negotiations with the business units, since all cost are covered and infrastructure is dedicated to specific uses.
Metered Chargeback From a business-unit perspective, metered chargeback has the advantage of providing a variable cost model. If usage goes up, costs go up, and as usage goes down, costs go down. Assuming that infrastructure usage is tied in some way to the value produced from the infrastructure, this fits very well with business units that have variable sales and variable workloads. On the IT-management side, in a metered-chargeback scenario resources are often provisioned out of a shared pool, which improves overall resource utilization. IT management will still need to cover the cost of all resources in the pool, whether utilized or not, so the rate will need to include some overhead. But in both theory and in practice the annual charges, on average, should be lower, since the resources are provisioned out of a shared pool.
Metered chargeback also has the benefit of providing regular feedback to the business unit on actual utilization. The impact of measurement on the behavior of individuals and organizations is well-documented and largely undisputed. The simple act of measurement will often lead individuals to modify their behavior. Done properly, charge-back can be used to provide incentives to reduce storage usage, eliminate the retention of unneeded data, and enable the IT organization to develop classes of service, based upon actual business requirements. As detailed in the Wikibon Professional Alert, "Developing A Storage Services Architecture," some IT organizations have begun to offer classes of storage services, that differ along dimensions of performance and availability. Typically, however, the assignment of data to a storage class has been relatively static based upon one-time, up-front, or periodically-reviewed decisions regarding application and data value. IT organizations rarely anticipate the implications of a more fluid environment, whereby data is dynamically migrated through tiers of storage.
The Impact of Dynamic Storage Tiering Recently, some storage vendors have begun offering automated storage-tiering solutions, whereby data is dynamically moved through various tiers of storage, based upon application requirements, business rules, and metadata. In a dynamic-tiering environment, chargeback can become significantly more complicated. How, for example, would a chargeback system measure and properly charge for the automatic, but temporary promotion of a subset of application data from Tier-1 spinning disk to Tier-0 solid state storage?
Operational Realities and the Cloud Effect Whether the charge-back mechanism is fixed-rate or metered, if a business unit has a business need for additional resources, it is the IT organization's responsibility to provide the resources, even when the requirements were not forecast by the business unit and are not in the original IT budget. Therefore, it is in the IT organization's interest to drive efficiency and maintain a sufficient buffer to support provisioning additional resources beyond budgeted increases. And while the buffer should include all reasonable operational and overhead costs, it cannot be too large, or the IT organization will find itself compared unfavorably to cloud-based infrastructure providers.
Action Item: CFOs and CIOs should carefully consider the desired impact of a chargeback system and choose a chargeback mechanism that fits with the desired impact. If the goal is to assign costs to business units, then a fixed-rate chargeback system is simple and achieves the goal. If the goal is to match IT value to business value, then a metered chargeback system is probably more appropriate. And if the goal is to drive greater efficiency and better utilization of IT resources, then a metered system that includes classes of service, either dynamic or static, is more appropriate.