Six economic answers you need when making re-platforming decisions
by Bill Kirwin, iiie consulting
When framing a re-platforming decision, it’s important to ask some basic questions that ensure the successful economic justification of the initiative. It’s also important to answer them accurately, completely and objectively. Critical dimensions to the strength of the business case are its transparency and defensibility. In other words, it's required to “show your work” to provide the backup and drill down proof of your answers.
These are not the only questions one should ask when making a workload re- platforming decision, or any IT investment decision. However, these six questions provide the minimum amount of information to vet an initiative.
While the answers don’t guarantee that a project will be approved, they address the full life-cycle cost/benefit/risk expectations of the decision and go a long way towards measuring the success of that decision.
The questions below frame the economic justification argument. The answers provide the framework for the business case.
1. How much will it cost to continue as-is?
Every argument for change has to start with a baseline assessment of the IT cost ecosystem. The elements of this baseline need to include all the elements of a proper TCO assessment (Assets, Labor, Fees). This puts a stake in the ground by which success or failure of new investments will be determined. Once the baseline is established it can be forecasted over a reasonable time horizon (3–5 years). The forecast should be long enough to settle in on a stable run rate for the next generation of the workload. Note that I use “as-is” rather than “do nothing”. I believe there is no such thing as a do-nothing scenario. Even in a stable, mature state, a workload is subject to cost events like maintenance, patches, upgrade cycles, labor costs, and licensing fees. So going forward as is does not mean doing nothing. It’s important to carefully identify, plot and plan these cost changes over the extended baseline scenario.
Baselining the entire ecosystem will also enable the second question to be answered in context with the full portfolio of workloads.
2. Which candidate workloads to forecast?
There are two ways to identify target workloads. The first is the list of workloads already known to be at end of life. An application that cannot meet the business demands because of technical obsolescence, spaghetti-code, or other inhibitors is a clear candidate. Infrastructure that is old, fully depreciated, and high maintenance are another class of possibilities. Development platforms that don’t meet modern needs could be considered. Finally, SaaS applications that offer new functionality by the slice may be appealing for re-platforming.
The second is to mine the workload portfolio to look for opportunities to reduce costs, increase functionality, and better meet business needs (remember, IT is a business unto itself and should include workloads that support IT processes). A proper baseline model is like a Rubik’s cube of assets, labor, and other resources that can be reshaped into IT functions, IT services, and business services. The ideal analytical equivalent of a Rubik’s cube is a ‘perfect pivot table’ that is a mashup of the many disparate data sources in the IT ecosystem (e.g., ITAM, ITFM, ITSM, PMO, G/L, CMDB, Business Applications, etc.
Either way, the candidate workloads should be extracted from the baseline and isolated for comparative analysis.
I recommend a BI for IT approach that will be detailed in a future post.
3. What is the TCO of targeted workloads?
Each extracted workload should have a cost basis as a subset of the baseline. Using a BI for IT modeling process, a fully burdened TCO of the workload can be established and forecasted to the planning horizon. This becomes the new baseline for as many alternate scenarios that can be imagined. The forecast should be based on a “planning curve” of factors that will affect the TCO over time. These planning curves should be easily adjusted for both “what-if “analysis and updated as actuals are recorded.
A key point here: a “living” addressable model is much more useful than a single point in time snapshot of the workload cost. This will enable the final scenario to be monitored and adjusted as needed.
4. What is the TCO / ROI of alternative scenarios?
In today’s IT marketplace, there are often several technical options for the next turn of the crank of a workload. Alternative scenarios might include upgrading the existing on-premise workload; refactoring and moving it to cloud, choosing a SaaS provider, etc. One of the challenges of IT comparative cost assessments is creating an apple-to-apple cost analysis. This is why I choose the workload, a generic platform agnostic common denominator.
Once the cost of as-is is determined and forecast to the planning horizon, alternative scenarios for the next generation workload can be created. These scenarios take all the cost elements in the legacy workload, plus any new elements that are part of the next generation workload. The addition of new costs are called “puts” and the cost reductions are “takes”. These puts and takes create a cost basis for the scenario.
They are applied to a planning curve and forecasted parallel to the baseline.
The result is a consistent, objective, comprehensive cost assessment of alternative scenarios for a targeted workload. This method can be applied universally to any workload in the data cube.
5. What do you need to make a defensible and informed decision?
Chances are that there will be several stakeholders interested in the cost and benefits of re-platforming and upgrading decisions. Each stakeholder may have a different perspective on the decision. The business stakeholders are mostly interested in the bang and less interested in the buck. The finance stakeholders are looking for financial performance (typically ROI, IRR, NPV, payback, etc.). The IT stakeholders are mainly looking for integration, standardization, scalability, elasticity, security, and architectural fit. So the economic analysis of the workload options needs to meet all these needs. All the stakeholders are interested in risk profiles of the alternative solutions.
This is where having a Rubik’s cube of IT BI data can really pay off by:
· Creating views of the data that appeal to various stakeholders
· Pivoting to create custom relationships between data categories
· Automatically generate complete financial reports
· Ability to show your work by drilling down to the cost of the lowest component
· Capability for what-if analysis to address stakeholder questions
6. How will the solution perform over time?
Increasingly, IT investments are scrutinized over time to determine if the projected benefits are being realized. Going are the days of one-off cost analyses that are filed away, never to be viewed again. Analysis by spreadsheet is very difficult to maintain over extended periods and is often limited to the initial assumptions. With a data cube, there is much more depth of interdependencies that often harbors the gremlins and boosters of benefits realization.
The selected solution scenario will have KPIs that can be harvested for benefits realization. It’s not only important to determine a benefit, but also to predict where it will occur during the workload lifecycle. Often benefits are realized late in the lifecycle after the workload platform is optimized and broadly adopted. This may be dramatically different between capital intensive on-premise investments and pay as you go cloud solutions.
A working model of your IT costs that is maintainable and dynamic is, in my humble opinion, the best tool to determine if and when the chosen solution will pay off.
The net-net is that your important IT business decisions require a robust, repeatable methodology and toolset to adequately answer the above questions. Beyond answering these questions it’s critical to be able to defend those answers. And finally, these answers need to stand to the test of time.
Full disclosure: I am a principal at the International Institute of IT Economics. We provide research and consulting services to IT providers and buyers. For more information contact us at email@example.com and visit our website at iiievalue.com