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Analysts predict feds could save big money with cloud computing

Federal agencies could eventually save 85 percent of their yearly information technology infrastructure budgets by moving operations to either a public, private or hybrid cloud, according to a pair of analysts at the consultancy firm of Booz Allen Hamilton who authored a report on the economics of cloud computing.

The consultants estimate that an agency would spend about $77.3 million to run 1,000 servers annually in-house, but it would cost only $22.5 million to run them virtually in a public cloud environment, $28.8 million in a hybrid cloud -- a mixture of public and private cloud-based services -- or $31.1 million in a private, agency-run cloud.

Originating from Booz Allen's economic and business analysis office, which performs a lot of work in IT capital planning, the report was spurred by increasing number of vendors making claims about returns on investment (ROI) that would come about by moving to the cloud.

"We were noticing that the ROI claims didn't really seem to look at the whole picture. They weren't looking at the potential transition costs. They weren't considering the whole life-cycle view," said senior associate Gwen Morton, who co-authored the report along with Booz Allen associate Ted Alford. "So our purpose was to look at the promise of cloud computing from an economic perspective, and put it back into the context of what we know from our experience working with agency IT capital planning."

In fiscal 2010, the government will spend about $20 billion on IT infrastructure, the consultants estimated, with much of that ripe for trimming. The pair worked up a cost-model that compared the costs of running departmental data centers with the payments required for space in public, private or hybrid clouds. The consultants won’t release their cost-model, but agencies can contact them for a work-out specific to their own environment.

Key to the savings is the more effective use of servers, Morton said. The report assumes that the servers in most government data centers run at about a 12 percent usage rate. Pooling customers or users, a cloud provider could up that use to about 60 percent, which means the overall cost for servers would be lower. Even with the higher cost of using cloud computing -- a premium of about 45 percent the researchers estimate -- it would still be cheaper for the customer to use a cloud service.

It should be noted that not everyone agrees that a 60 percent use rate would be feasible, at least for government clouds running public-facing Web servers. One observer, on the Slashdot News forum devoted to the topic, noted that "60 [percent] usage corresponds to 100 [percent] usage for 14 hours per day, 7 days a week, or 20 hours of full usage for 5 days per week, and so would be quite high for a government Web site."

Morton noted that the higher the percentage of usage that an agency currently enjoys with in-house servers, the less the cost savings that could be had by moving to the cloud model. Overall, however, the report urges the use of the largest clouds possible. "It is more cost-effective to group smaller existing data centers together into as large a cloud as possible, rather than creating several smaller clouds," the researchers state.

Another potential problem with the estimate is the datasets used to compare prices. On the commercial side, Morton said there isn't a lot of information on what commercial cloud services would charge, given that they aren't that many services available now. On the government side, the report mentions that the General Services Administration, Information Technology Infrastructure Line of Business initiative, is coordinating a benchmarking effort across the government, which will help better determine the costs of data center operations.

The reports also points out a number of mitigating factors against agencies ramping up cloud in the immediate future. It will take 18 to 24 months to redirect funding into cloud computing, given the budget processes or most agencies. Moreover, some initial investment will be needed and the implementation will take several years. And, as pointed out many times before, government standards for securing cloud operations have yet to be put into place.

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