NJVC The Economic Benefit of Cloud Computing

The Economic Benefit of Cloud
Computing

An NJVC® Executive White Paper

Kevin L. Jackson
General Manager, Cloud Services, NJVC

September 2011

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

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.


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


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
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

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 Figure 2- BAH study results show that redeploying 1000 servers from
3). A Deloitte study (Figure 4) confirmed a traditional data center to the cloud can result in a drastic reduction
that cloud computing deployments in IT operations and maintenance cost.
delivered greater investment returns with
a shorter payback period when compared to the traditional on-premise delivery option.


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

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.


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 private 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 (solicitation HM0177-11-R0021).
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.

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.

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.


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.

Proper cloud 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.


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


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