Project-Based Funding: An Obstacle to Private Cloud

Andrew Sherman, VP Advanced Consulting and Steve Kaplan, VP Virtualization and Cloud

The following is one of a collection of articles that addresses strategy around hybrid cloud architecture and IT as a Service.

The traditional physical data center consists of a hodgepodge of equipment, tools and systems—all driven by project-based funding. This budgeting anachronism is an anathema to a virtualized data center that utilizes shared resource pools and can absolutely derail a planned transition to a private cloud model. When implementing a private cloud solution, organizations should transition to a chargeback model.



Before a virtual machine can be put into production, approvals must typically be obtained. The server teams need to acquire the necessary LUNs from the storage group, the VLANs from the network team, and the firewall configurations from the security folks. Management components, load-balancing requirements, and regulatory compliance can all require additional staff time and delay VM provisioning.

A private cloud takes all of this process and standardizes, automates, orchestrates and optimizes it in a secure and repeatable manner. The time to provision a virtual machine—along with the associated storage, network and security components—decreases from days to minutes.

While reduced process times and the associated costs are certainly important, the biggest private cloud benefits come from aligning more flexible and cost-effective computing capabilities with vacillating business requirements. Rather than spending the majority of its time focusing on infrastructure, the IT staff can instead become an enabler for business units to achieve objectives such as increasing top-line revenues.



IT organizations naturally tend to continue utilizing elements of their physical data centers as they virtualize. Some of these, such as backup products or security processes, may not be optimal for a virtualized infrastructure—but they at least work. When it comes to project-based budgeting models, the outcome is often much more painful.

The most common IT funding model includes a basic budget for “lights on” capabilities along with anticipated growth. Business units requesting new applications or technology projects provide additional monies but commonly insist upon specific equipment that is optimal for their individual needs. Little importance is placed upon how the equipment interoperates with the data center environment as a whole. The resulting overlapping or redundant equipment, tools and systems inevitably lead to unnecessary expense.

The technology island composition of a typical physical data center is also highly inefficient. Seventy percent of the traditional IT budget is allocated to just “keep the lights on.”  It is rather humorous to recall that Gartner’s number-one energy savings recommendation at its 2007 Data Center Conference was to turn off servers that appear idle and see if anyone complains.1



Project-based budgeting, although inefficient, works in a physical data center because each business unit “owns” its servers and generally utilizes local or otherwise dedicated storage. However, this model quickly becomes problematic as organizations virtualize.

Virtualization eliminates the need to purchase departmental-specific resources—most business units can’t even identify their equipment if they wanted to do so. Virtual machines migrate across hosts, storage moves between shared arrays, virtual switches direct and monitor traffic, and virtual load-balancers as well as firewall appliances often replace their physical counterparts.

IT fulfills new project requests simply by increasing resource-pool capacity. This is often possible in the initial stages of virtualization. But virtualized data centers become subject to a phenomenon known as Jevons Paradox whereby reduced technology costs lead to increased demand. Business units quickly figure out that IT can now simply spin up a virtual machine rather than going through an extensive and expensive procurement cycle. Server requests subsequently increase dramatically.

As resources reach capacity, IT has no option but to ask the next service requestor to bear the burden of required expansion. Pity the business unit with a virtual machine request that just barely exceeds existing capacity. IT may ask the business unit to fund a whole new blade chassis, SAN or Nexus 7000 switch. 

This does not bode well for the cloud. Rather than gaining instant and automatic access to the required infrastructure, the business unit either has to cough up the money for far more capacity than it requires, wait until the next business cycle, or wait until other business units fund the purchase.



Capacity management, rather than project-based funding, is often utilized effectively within virtualized environments to ensure adequate resources for upcoming projects. While this model can help mitigate the inefficiencies of traditional project-based funding within a virtualized data center, it is also insufficient for enabling private cloud.

The very definition of cloud, as stated by the National Institute of Standards and Technology (NIST), includes “measured service” as one of the five attributes in its definition of cloud computing. NIST emphasizes, “Typically, this is done on a pay-per-use or charge-per-use basis”.

Another term for private cloud is IT-as-a-Service (ITaaS). In order to achieve ITaaS, IT must mirror public cloud providers in charging users based upon resource utilization. An effective chargeback environment can reduce or eliminate the requirement for time-consuming negotiations and interdepartmental budgetary meetings.

A business unit simply purchases the exact computing resources required on a per-unit basis. Knowing resource costs in advance also helps business units budget and determine what is realistic in terms of projects and scale. And when a project completes, the billing stops.

Another advantage of a chargeback model is that it drives efficiency among users who naturally want to minimize their costs. When business units know, for example, that they are being charged each month for the 20 virtual machines they no longer use, they will take the initiative to have them decommissioned.



Public cloud ensures the end of the competition-free environment that IT has enjoyed for many years. Business units are increasingly considering cloud-based alternatives such as SaaS and ITaaS.

Rather than resisting the public cloud, IT should embrace it. Utilizing an accurate chargeback model makes it much easier for business units to compare internal costs with off-premise options. IT should also lead the way in helping evaluate which internal and external venues make the most sense for hosting various workloads while still ensuring corporate standards of performance, security, compliance and disaster recovery.

Link Alander, CIO of Lone Star College System, and Rob Bergin, a systems administrator at a Fortune 100 company, also contributed to this article. Top 10 Ways to Save Energy in the Data Center, November 29, 2007.


PROJECT-BASED FUNDING: AN OBSTACLE TO PRIVATE CLOUD is one in a series of articles that create the conversation of “High Availability in a Hybrid World.” These assets are meant as a resource for IT decision makers who are faced with the challenge of creating either a hybrid cloud or IT as a Service strategy.



Hybrid cloud is a composition of two or more clouds (private, community or public) that remain unique entities but are bound together, offering the benefits of multiple deployment models.  By utilizing hybrid cloud architecture, companies and individuals are able to obtain degrees of fault tolerance combined with locally immediate usability without dependency on internet connectivity. Hybrid cloud architecture requires both on-premises resources and off-site (remote) server-based cloud infrastructure. Hybrid cloud provides the flexibility of in-house applications with the fault tolerance and scalability of cloud based services.



(ITaaS) is an operational model where the IT organization of an enterprise is run much like business, acting and operating as an internal service provider. In this model, IT simplifies and encourages service consumption, provides improved financial transparency for IT services, and partners more closely with lines of business. This type of IT transformation is business focused rather than cost focused, leading directly to improved levels of business agility. Typically, ITaaS is enabled by technology models such as Infrastructure as a Service (IaaS) and Platform as a Service (PaaS), all of which are part of cloud computing.


For more information please contact us at