NJVC The Economic Benefit of Cloud Computing

1 NJVC and Driven by Your Mission are registered trademarks of NJVC, LLC. © 2011 NJVC, All Rights Reserved

The Economic Benefit of Cloud Computing

An NJVC Executive White Paper

Kevin L. Jackson General Manager, Cloud Services, NJVC

September 2011


Executive Summary Cloud computing, as defined by the National Institute of Standards and Technology, is a model for enabling “… convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.” NIST is implying the economies of scale that go with cloud computing when it refers to a pool of configurable computing resources. Cloud computing is often referred to as a technology. However, it is actually a significant shift in the business and economic models for provisioning and consuming information technology (IT) that can lead to a significant cost savings. This cost savings can only be realized through the use of significant pooling of these “configurable computing resources” or resource pooling. According to NIST, this capability is an essential characteristic of cloud computing. Resource pooling is the ability of a cloud to serve multiple customers using a multi-tenant model with different physical and virtual resources dynamically assigned and reassigned according to demand. Cloud computing economics depends on four customer population metrics:

1. Number of Unique Customer Sets (n) 2. Customer Set Duty Cycles (λ,f) 3. Relative Duty Cycle Displacement (t) 4. Customer Set Load (L)

These metrics drive the cloud provider’s ability to use the minimum amount of physical IT resources to service a maximum level of IT resource demand. Properly balancing these factors across a well characterized user group can lead to approximately 30-percent savings in IT resources, and enables the near real-time modification of the underlying physical infrastructure required for the delivery of the desired “illusion of infinite resources” synonymous with a cloud computing user’s experience. When implemented properly, the cloud computing economic model can drastically reduce the operations and maintenance cost of IT infrastructures. A 2009 Booz Allen Hamilton (BAH) study concluded that a cloud computing approach could save 50 to 67 percent of the lifecycle cost for a 1,000-server deployment. Another Deloitte study confirmed that cloud deployments delivered greater investment returns with a shorter payback period when compared to the traditional on-premise delivery option. In considering cloud computing for the Intelligence Community, security is an obvious concern. Given the legal and operational concerns, classified information should always be processed in properly protected and certified IC private or community clouds. If a secure cloud model can be designed, economic savings can certainly be realized. When used to process unclassified information, sharing cloud computing resources can nominally provide the operational advantages of a private cloud with a cost closer to that of a public cloud due to the expected economies of scale from combined user communities.

http://resource.onlinetech.com/the-six-benefits-of-cloud-computing/Cloud%20computing%20is%20a%20model%20for%20enabling%20convenient,%20on-demand%20network%20access%20to%20a%20shared%20pool%20of%20configurable%20computing%20resources%20%28e.g.,%20networks,%20servers,%20storage,%20applications,%20and%20services%29%20that%20can%20be%20rapidly%20provisioned%20and%20released%20with%20minimal%20manag


The federal government is currently deploying a federal community cloud. Officially referred to as the General Services Administration Infrastructure as a Service Blanket Purchase Agreement (GSA IaaS BPA; item #4 in the White House CIO’s “25 Point Implementation Plan to Reform Federal Information Technology Management”), this Government Wide Acquisition Contract (GWAC) vehicle is designed to implement a community cloud economic model to support the federal government. The Office of Management and Budget (OMB) expects this community to provide approximately $20 billion in cloud computing services to a community made up of more than 25 agencies. Using the BAH study as a guide, and assuming that community cloud economies mimic those expected from a hybrid cloud, transitioning IT services from an agency-owned IT infrastructure to the GSA IaaS platform should deliver benefit cost ratios of approximately 7:1. Cloud computing provides some strong benefits and economic incentives. Selecting a public, private, hybrid or community cloud implementation will depend on a customer’s specific application, performance, security and compliance requirements. Proper deployment can provide significant savings, better IT services and a higher level of reliability. 1) Lower Costs 2) Cap-Ex Free Computing 3) Deploy Projects Faster, Foster Innovation 4) Scale as Needed 5) Lower Maintenance Costs 6) Resiliency and Redundancy


Scenario A Customer Sets n=3

λ f t

Customer Load L= 1 2 2 0

Max Load = 3

Customer Load L= 1 4 1 2 Min Load =1

Transitive Load= 2,-2


Cycle Load 1 3 1 1 1 3 1 1

Scenario B

Customer Sets n=3

λ f t


Max=3

Customer Load L= 1 4 1 2 Min=0

Transitive Load= 1,-3


Cycle Load 2 3 0 1 2 3 0 1

Scenario C

Customer Sets n=3

λ f t


Max=2

Customer Load L= 1 4 1 2 Min=1

Transitive Load=1,-1


Cycle Load 1 2 1 2 1 2 1 2

Introduction Although often referred to as a technology, cloud computing is actually a new business model for provisioning and consuming information technology (IT). Cloud computing is capable of delivering significant economic value through the use of resource pooling, and according to the National Institute of Standards and Technology, “configurable computing resources” or resource pooling is an essential characteristic of cloud computing. Cost Savings by Resource Pooling Resource pooling is the ability of a cloud provider to serve multiple customers using a multi-tenant model with different physical and virtual resources dynamically assigned and reassigned according to demand. Location independence exists as the customer generally has no control or knowledge over the exact location of the provided resources (e.g., storage, processing, memory, network bandwidth and virtual machines), but may be able to specify location at a higher level of abstraction (e.g., country, state or data center). From a technology perspective, the cloud computing economic model typically leverages virtualization as the means to automate the provisioning of IT resources, leading the layperson to assume that the use of virtualization defines cloud computing. In truth, the cloud computing economic model depends on four customer population metrics:

1. Number of Unique Customer Sets (n) - The number of unique customer groupings being serviced by the cloud provider

2. Customer Set Duty Cycles (λ,f) – Time span and frequency of each customer group’s high demand period

3. Relative Duty Cycle Displacement (t)- Relative time displacement between customer group and high-demand period

4. Customer Set Load (L)- Customer group peak infrastructure services demand load

Figure 1 - Multiple customer demand factors affect the cloud provider's ability to exploit the economic value of resource pooling in cloud computing.


These factors drive the cloud provider’s ability to use the minimum amount of physical IT resources to services a maximum level of IT resource demand. Figure 1 illustrates this concept. The three scenarios depict different customer sets, each demanding a maximum load of one unit. The customer set duty cycles are also similar across each scenario, with the only difference in the duty cycle displacement values. With this very minimal difference in duty cycle displacement values:

The maximum customer demand in Scenario A and B is 30 percent greater than that in C. Only Scenario B has a minimum demand equal to zero. Transitive load measures the speed at which an infrastructure needs to respond to changes

in user demand. The transitive load requirement of Scenario C is 50 percent less than A or B. To support the demand load of all customer sets, Scenarios A and B would both require a

total of three units of support if each customer owned its own resources. Scenario C, however, would only require a maximum of two units to support virtually the same customer demand, achieving a 30-percent resource savings. By effectively leveraging this resource savings, the cloud provider can provide the same level of service at a reduce cost to each customer set thus illustrating the economic value of resource pooling.

To effectively leverage the cloud computing economic model, the cloud provider must continuously monitor these key population metrics in near real time. This enables the near real-time modification of the underlying physical infrastructure required for the delivery of the desired “illusion of infinite resources” synonymous with a cloud computing user’s experience. When implemented properly, the cloud computing economic model can drastically reduce the operations and maintenance cost of IT infrastructures. Figure 2 shows the results of a 2009 Booz Allen Hamilton study which concluded that a cloud computing approach could save 50 to 67 percent on the lifecycle cost for a 1,000 server deployment. The same BAH study also showed increased benefit cost ratios when the cloud transition included more servers or a faster migration schedule (Figure 3). A Deloitte study (Figure 4) confirmed that cloud computing deployments delivered greater investment returns with a shorter payback period when compared to the traditional on-premise delivery option.

Figure 2- BAH study results show that redeploying 1000 servers from a traditional data center to the cloud can result in a drastic reduction in IT operations and maintenance cost.


Figure 4 - Deloitte Cloud Computing Study reinforces earlier BAH study confirming that cloud computing delivers greater investment returns with shorter payback periods than traditional IT service delivery options.

Figure 3 - BAH study shows increased benefit cost ratios when the cloud transition included more servers or a shorter migration period.


Transitioning IT services from a federal agency-owned IT infrastructure to the General Services

Administration Infrastructure as a Service platform should deliver cost benefit ratios of

approximately 7:1.

Cloud Computing for the Intelligence Community In considering cloud computing for the Intelligence Community, security is an obvious concern. Classified information should always be processed in properly protected and certified IC private or community clouds. If a secure economic model can be designed for an IC customer, cost savings can certainly be realized. With that said, the use of public or community clouds for unclassified IC data is still an option. The National Geospatial-Intelligence Agency (NGA) is exploring this option through their Unclassified Remote Hosted Desktop procurement. In a document clarifying cloud computing definitions, the agency said: “Noting the requirement to ‘satisfy the security requirements’ should have led the offerors to understand that a purely ‘public’ response where, for example, foreign users are comingled with NGA users does not satisfy the security requirement.” NGA went on to state: “A community cloud is essentially a cloud cooperatively shared by more than one organization. It may be hosted in a contractor facility or on the premises of one or more community members. The community, such as DoD, IC or federal government agencies, achieves reduced security and operational risk compared to use of a public cloud since they can trust one another to: 1) appropriately protect information that may be inadvertently spill between user organizational domains, and 2) cooperatively assist in managing both security incidents and resource constraints. Sharing the cloud can nominally provide the operational advantages of a private cloud with a cost closer to that of a public cloud due to the expected economies of scale from combined user communities.” Federal Community Cloud Economic Model The federal government is currently deploying a federal community cloud. Officially referred to as the General Services Administration Infrastructure as a Service Blanket Purchase Agreement (GSA IaaS BPA; item #4 in the White House CIO’s “25 Point Implementation Plan to Reform Federal Information Technology Management”), this Government Wide Acquisition Contract (GWAC) vehicle is designed to implement a community cloud economic model to support the federal government. The Office of Management and Budget (OMB) expects this community to provide approximately $20 billion in cloud computing services to a community made up of more than 25 agencies.

Using the BAH study as a guide, and assuming that community cloud economies mimic those expected from a hybrid cloud, transitioning IT services from an agency-owned IT infrastructure to the GSA IaaS platform should deliver cost benefit ratios of approximately 7:1.


Proper cloud deployment can provide significant savings, better IT services and a higher level of

reliability.

Benefits and Economic Incentives of Cloud Computing Cloud computing provides some strong benefits and economic incentives. Selecting a public, private, hybrid or community cloud implementation will depend on a customer’s specific application, performance, security and compliance requirements. Proper deployment can provide significant savings, better IT services and a higher level of reliability.

1. Lower Costs – Since cloud computing pools all of the computing resources that can be

distributed to applications as needed, thus optimizing the use of the sum of the computing resources, it delivers better efficiency and utilization of the entire shared infrastructure. This also leads to lower costs for power and facilities due to the smaller footprint.

2. Cap-Ex Free Computing – A public cloud delivers a better cash flow by eliminating the capital expense associated with building and updating the server infrastructure.

3. Deploy Projects Faster, Foster Innovation – Because servers can be brought up & repurposed in a matter of minutes, the time to deploy a new application drops dramatically with cloud computing. Rather than installing and networking a new hardware server, the new server can be dialed up and imaged in through a self-serve control console. Or better yet, with a private cloud, your service provider can dial up a new server with a single call or support ticket. This mechanism also allows you to foster innovation by allowing you to try new configuration quickly and easily without waiting and paying for each new configuration.

4. Scale as Needed – As your applications grow, you can add storage, RAM and CPU capacity as needed. This means you can buy “just enough” and scale as the application demands grow. In the end, the consumer is only paying for what they use and the level of service they request; similar to phone service.

5. Lower Maintenance Costs – Because cloud computing uses less physical resources, there is less hardware to power and maintain. With an outsourced cloud, you don’t need to keep server, storage, network, and virtualization experts on staff full time.

6. Resiliency and Redundancy – You can get automatic failover between hardware platforms and disaster recovery services to bring up your server set in a separate data center should your primary data center experience an outage.

The economic benefit of cloud computing is clear and compelling. It is available at a fraction of the cost of traditional IT services, eliminates upfront capital expenditures and dramatically reduces administrative burden on IT resources. Cloud computing is a pay-as-you-go approach to IT that requires a low initial investment—additional investment is incurred as system use increases, and costs can decrease if usage decreases. In this way, cash flow better matches total system cost.

http://www.onlinetech.com/managed_servers/private_cloud/

http://www.onlinetech.com/managed_hosting/disaster_recovery/


About the Author Kevin Jackson is General Manager, Cloud Services, at NJVC, LLC. Before joining the company, Mr. Jackson served in various senior management positions with Dataline, LLC; Cryptek, Inc.; IBM; and JP Morgan Chase. Recently, he was named a “Cyber Security Visionary” by U.S. Black Engineer and Information Technology magazine. Mr. Jackson is the founder and author of “Cloud Musings” (http://kevinljackson.blogspot.com) and “Cloud Musings on Forbes” (http://blogs.forbes.com/kevinjackson), a Forbes magazine online blog dedicated to public sector cloud computing. He is also founder and editor of “Government Cloud Computing on Ulitzer“ electronic magazine (http://govcloud.ulitzer.com ). His first book, GovCloud: Cloud Computing for the Business of Government was released in spring 2011. Mr. Jackson has been deeply involved in the broad collaborative effort between industry and the U.S. National Institute of Standards and Technology on the federal government’s adoption of cloud computing technologies. He is the Network Centric Operations Industry Consortium’s Cloud Computing Working Group Chairman. About NJVC NJVC is one of the largest information technology solutions providers supporting the U.S. Department of Defense. We provide innovative and high-quality IT solutions to the government and commercial organizations, and specialize in supporting highly secure IT enterprises, particularly for the intelligence and defense communities. To learn more, visit www.njvc.com.


NJVC 8614 Westwood Center Dr

Suite 300 Vienna, VA 22182

703.556.0110

www.njvc.com